Final answer:
Casey Nelson must consider how increased labour costs, through union wage demands, affect ROI for potential investment projects when higher wages could lead to more investment in machinery and higher worker productivity but also a reduced need for labour. Calculating ROI, similar to determining the percentage change in wages, is crucial for making informed investment decisions.
Step-by-step explanation:
The scenario with Casey Nelson at Pigeon Company concerns return on investment (ROI) and how investment decisions can be affected by changes in labor costs. When wages rise, as shown in the example where the wage has gone up to $24 an hour, it can incentivize a firm to invest in machinery, which in turn may lead to higher productivity from union workers using more or better physical capital equipment. Yet, this approach may result in the firm needing fewer workers due to increased automation.
In the context of investment projects, Casey Nelson would need to evaluate the potential ROI of such projects, considering the increased wages and the possibility of substituting labour with machinery. This substitution could lower labour costs but has implications for the number of workers employed. A careful analysis is required to determine the best investment that maximizes ROI, considering both the short-term cost reductions and the long-term implications of increased productivity versus employment levels.
An example of calculating a growth rate is shown where an employee receiving a $2 raise on a $10 per hour job experiences a 20% increase in their wage, similar to how ROI is calculated in terms of investment growth.