Internal Firm Dynamics and Price Levels

Internal Firm Decisions and Macroeconomic Outcomes

Consider a simplified economy composed of numerous identical firms where employees are also the sole consumers. Within each firm, the marketing department sets prices to achieve a certain profit margin over costs, and the human resources department negotiates wages. If, across this entire economy, every marketing department simultaneously decides to increase its price markup while every human resources department keeps nominal wages unchanged, what is the most direct consequence for the employees?

In the simplified economic model where wage-setting is handled by a firm's HR department and price-setting by its marketing department, a company-wide policy that allows the marketing department to increase prices without any corresponding change in the wage-setting policy of the HR department will lead to an increase in the real wages of the firm's employees.

The Inherent Conflict in Firm Decision-Making