Tara Collins
Macroeconomics
Dr. Choi
9 July 2022
Milestone 2 Econ 230
Due to inflation, Shell has reported its highest ever quarterly profits as oil and gas prices have surged around the world. “Shell made 9.13bn in the first three months of the year, nearly triple its 3.2bn profit it announced for the same period last year. But the firm said pulling out of Russian oil and gas due to the Ukraine conflict had cost it 3.9bn” (Shell profits nearly triple as oil prices surge, 2022).
Royal Dutch Shell fueled fears of a downturn in the jobs market today after they signaled significant cuts over the next year in Europe and the U.S. They are shedding 1,000 posts who are mainly corporate staff and those involved in downstream activities such as refining. They had to cut 5,000 last year. Britain and other Western nations have warned that there will be a rise in unemployment as businesses struggle to recover from recession. On another note, if gas prices continue to go up without people’s salaries going up, people will not be able to afford the commute to work. This will cause a major increase in unemployment rates which they are already high. Oil demand is being curbed by high prices. “While demand for crude oil is expected to decline over the coming decades, demand for energy will undoubtedly continue to grow. The integrated energy firm is positioned to meet growing global demand for energy and has a management compensation structure aligned with the interests of shareholders” (Trainer, 2022).
“Intertemporal substitution is when a person or business is most likely to work hard when working hard brings the greatest return” (modern econ textbook citation). In the case of Shell, the profits have been very high during the first three months of the year, nearly triple what was expected so there is probably more leisure and less effort during this inflation period. Uncertainty and irreversible investments are those that can not easily be reversed so they are carefully thought out before taken into action. There are many reasons to invest in Shell but one of the more important ones is that future cash flows will become less exposed to oil and gas prices and will have a stronger link to broader economic growth.
Labor adjustment costs are the costs of shifting workers from declining sectors of the economy to growing sectors. If a worker is laid off at Shell and must find work elsewhere, they may take a decrease in pay because they are unable to find the same salary at another job. This is an example of labor adjustment costs. Time bunching is another transmission mechanism that just means that people like to do things at the same time as work, party, clean, sell and produce.
Collateral is a valuable asset that helps to secure a loan. If the borrower defaults, ownership of the collateral transfers to the lender. This is conducive to the profitability of Shell because banks like to loan to businesses that have positive net worth and lots of money so they would not have a problem with this company and loaning money.
Works Cited
BBC News. 2022. Shell profits nearly triple as oil prices surge. [online] Available at: <https://www.bbc.com/news/business-61330552> [Accessed 9 July 2022].
Trainer, D., 2022. Royal Dutch Shell Is Not Running On Empty. [online] Forbes. Available at: <https://www.forbes.com/sites/greatspeculations/2021/12/21/royal-dutch-shell-is-not-running-on-empty/?sh=4b826aea2c2c> [Accessed 9 July 2022].