Foundation Public School

O-level Defence Campus

Economics – Grade X

CH 18:WORKERS

Workers get paid a wage. The worker then pays income tax (progressive)
on this wage and what is left is called the disposable income.

What affects an individual’s choice of occupation?

There are two reasons that people work:

1. the financial- anything to do with money

2. non-financial benefits. things like fringe benefits (a company car
perhaps) , promotion prospects, job security..etc

A Summary of Wage Factors That Influence Occupational Choices

Factor Explanation

Wages  An agreed amount of money/hour & is

calculated directly from the number of
hours worked
 E.g. If a student works in a restaurant for
6 hours, 5 days a week & she gets paid
$10/hour, her weekly wage is $300
(6x5x$10)
Salary  Employment contracts often state the
agreed annual salary the employee will
receive
 This is then divided by 12 & paid
monthly
 The hours worked monthly may vary but
the pay received is always the same
Commission  Often used as payment to sales people

Page 1 of 11
  It is typically a percentage of the value
of the transaction involved e.g. estate
agents receive 3-7% of the selling price of
any property they sell
 This can motivate employees to
maximise sales
Bonus  Money paid in addition to a salary & is
usually single annual payment
 Often paid when the company earns high
levels of profits, or as a reward for
exceptional worker performance
Piece rate pay  A fixed amount paid to the employee
for each completed item produced e.g.
25 Rupees paid to workers in India for
each pair of socks they produce
Performance  Payment based on how well the worker
related pay performs
(PRP)  Workers doing exactly the same job may
receive different compensation based
on different outcomes they achieve
Share options  Payment through the issuing of shares in
the company the employee works for
 This is usually in addition to a monthly
salary
 The monetary value of the shares
provided to the employee can be
calculated on any given day as: number
of shares x share price
Fringe benefits  Benefits provided in addition to the
normal salary
 They can be significant in influencing
occupational choices
 Includes benefits such as such
as childcare, free lunches, gym
membership, company car

Page 2 of 11
Non-wage Factors

 Many different non-wage factors influence a workers choice of

occupation

1. Length of training or level of education required: The longer the

time period required to study/train for a job, the fewer the number of
people who seek employment in that occupation e.g. it usually takes
seven years to become a lawyer

2. Job security: Employment contracts in different industries have

different time periods attached to them. Some contracts are one to
four years in length, so provide high security e.g financial sector
contracts. Others have a short notice period & the employee can be
dismissed with a very short notice period e.g. 30 days

3. Job satisfaction: Finding fulfilment in a job role & enjoying work is a

significant part of generating job satisfaction. Workers will often
change their jobs/careers so as to improve their job satisfaction

4. Career prospects: Jobs with a defined pathway for promotion (&

salary increases) are often more desirable

5. Level of challenge: Many workers step into an occupation due to the

challenge of the role e.g. firefighters

6. Status: Some jobs carry a higher recognition in society which workers

find appealing, for example doctors, surgeons & lawyers

Page 3 of 11
Factors That Influence The Demand for Labour

 The labour market is composed of sellers of labour (households)

& buyers of labour (firms)
o Workers supply their labour & firms demand labour

 The demand for labour is a derived demand

o This means that it depends on the demand for
goods/services
 If demand for goods/services increases then the demand
for labour will increase - and vice versa

1. Price of the product: If the selling price of the product increases,

then the firm will be incentivised to supply more & the firm's demand
for labour will increase
2. The demand for the final product: when an economy is booming
then demand for most goods/services will be high - & the
demand for labour will be high and vice versa
3. ability to substitute capital (machinery) for labour: If it is more
cost effective, to switch production from using labour to capital
(machinery), then demand for labour will fall
4. the productivity of labour: If the productivity of labour increases
(possibly through training) this will lower average costs & firms will
likely demand more labour

Factors Influencing the Supply of Labour

 There are numerous factors that influence the amount of labour

supplied to a particular industry

1. Training period: if quality training and education for a particular job,

say pilots, is lacking, then the labour supply for it will be low
2. Wages in other occupations: Comparative wage rates in
substitute labour markets strongly influence the supply of labour e.g. it
is getting harder to recruit economics teachers as the private
sector offers higher wages for their skills
Page 4 of 11
 3. Changes in migration policy: Policies that increase the net
migration rate increase the supply of labour to certain industries
4. Income tax levels: as income tax increases, labour supply
decreases - and vice versa
5. Working conditions: The working conditions & non-wage benefits can
act as strong incentive in certain industries
6. Union power: Trade unions can increase the supply of labour to
certain industries as workers consider the benefits of belonging to
the union
7. Level of welfare benefits: higher the level of welfare benefits,
the lower the incentive for low-skilled labour to offer their labour -
and vice versa

Diagrammatic Analysis of the Labour Market

The labour market is a type of factor market

Factor markets follow exactly the same rules as product markets

1. They are affected by changes to price, demand & supply

2. They are affected by the price elasticity of demand & supply.

 Labour market equilibrium occurs where the demand for labour

(DL) is equal to the supply of labour (SL)
 The DL is the demand by firms for workers - firms demand more
labour as the wage rate decreases which results in a downward sloping
demand curve
 The SL is the supply of labour by workers - workers supply more
labour as the wage rate increases which results in an upward sloping
supply curve

 Individual firms are price takers in the labour market as they have to
accept the wage rate that workers are being paid in the industry
 If they offer a lower wage, they will likely struggle to recruit workers

Page 5 of 11
  If they offer a higher wage there will be a large number of workers
applying to work there

In the labour market for graphic

designers, the equilibrium wage rate
is W and the equilibrium quantity is
Q. At this point the DL = SL

Diagram Analysis

 The market for graphic designers is

in equilibrium where DL = SL
 The equilibrium wage is W and
the quantity of labour is Q
 There is no excess supply of
labour
 There is no excess demand for labou

PED & PES of Labour

 The demand for highly skilled players is very price inelastic

 Clubs want the very best players, almost irrespective of what they cost
 The supply of highly skilled players is also very price inelastic
 A significant increase in price will have little impact on the quantity of
labour supplied in the market as it takes years to develop LeBron
James type skills

 The demand for unskilled workers is very price elastic

o If wages dropped a little, then firms would respond quickly
by employing more workers
 The supply of unskilled workers is also very price elastic
o Due to it being an unskilled job, there would quickly be an
increase in the supply of labour if wages were to increase

Page 6 of 11
Why would a person’s wage rate change overtime?

 As a beginner, the individual would have a low wage rate since he/she
is new to the job and has no experience.
 Overtime, as his/her experience increases and skills develop, he/she
will earn a higher wage rate. If he/she gets promoted and has more
responsibilities, his/her wage rate will further increase.
 When he/she nears retirement age, the wage rate is likely to decrease
as their productivity and skills are likely to weaken.

Wage Differentials

Why do different jobs have different wages?

1. Relative Bargaining Power: depends on age and experience,

memberships of trade union, education, supply of workers
2. Government Policy: Minimum Wages: A minimum wage is a legally
imposed wage level that employers must pay their workers
a.
i. It is set above the market rate
ii. The minimum wage/hour often varies based on age
3. Gender pay differences: Men usually work full-time whereas women
often work part-time
4. Industrial sector : Primary sector workers are usually paid low
wages due to the unskilled nature of the job, Secondary
sector workers add value to the raw materials & these products sell
for higher profits. Tertiary sector workers are paid the highest. Their
jobs often require highly valued skills that take years to acquire & the
products they sell or services they provide can be complex &
expensive e.g. artificial intelligence coders

5. Public and private sector: Public sector organisations are owned &
controlled by the Government ; Private sector organisations
are owned & controlled by private individuals & firms

Page 7 of 11
Reasons for Wage Differentials Between Private & Public Sector
Workers

Private Sector Workers

Public Sector Workers

 Salaries can be extremely  Wages will reach a

high, especially if the maximum ceiling that is
value of goods or services often below what the
offered is high & the private sector may offer
workers are productive e.g. public school teachers
are paid less than private
 Some salaries can also school teachers
be very low as firms seek
to cut costs & maximise  Wages often do not fall
profits e.g. garment sector as low as some private
worker in Bangladesh get sector jobs as many public
paid very little for the work sector workers belong
they do to trade unions

 Many wage benefits tend  Job security is high

to be better than those resulting in long careers
provided by the public with defined pathways
sector e.g. bonuses or for promotion
share options
 Pensions are often very
good, but are limited in
comparison to private
sector pensions

6. Skilled & Unskilled Workers: high supply of unskilled labour.

This means that employers can push wages down as there is always
someone willing to work for less (take it or leave it approach to wages)

To become skilled takes time & money which means that there is
a more limited supply of specific skillsets. In recognition of these
factors, wages for skilled workers are higher

Page 8 of 11
Division of labour and specilization

The division of labour occurs where production is broken down into

many separate tasks.
Division of labour can raise output per person as people become proficient
through constant repetition of a task. This allows workers to specialise by
focusing on one (or a few) of the components that make up the production
process & thereby gain significant skill in doing it

 This results in higher output per worker & so increases productivity

Pros & Cons of the Division of Labour & Specialisation

Stakeholde
Pros Cons
r

Worker  Workers can acquire  The work can

the single skill required be repetitive & boring
relatively quickly  There is limited
 Workers gain recognition opportunity to gain
& status for performing additional skills
their skill well  If the firm
replaces labour with
capital, the worker
may find it difficult to
find employment
elsewhere due to
their limited skill base

Firm  Time spent training new  Worker productivity ca

workers is relatively short n fall due to the
 Increased output allows boredom/ decreased
firms to generate more motivation experienced
sales & profit  Staff turnover may be
 Higher labour high as workers seek
productivity lowers new, interesting
cost/unit for firms, which opportunities elsewhere
makes their goods more  International trade is
competitive international beneficial for the firms
ly (exports) that can
compete globally.
However, some firms
Page 9 of 11
 will be unable to
compete and will go
out of business
 Entire industries may
close leading
to structural
unemployment

Economy  Increased exports can  Specialisation may

result in economic create over-
growth for the nation dependency on other
 Economic growth usually countries' resources.
leads to higher This may cause
income and a better problems if conflict
standard of living arises (E.g, Europe's
 Income gained from reliance on Russian
exports can be used natural gas during the
to purchase other goods Ukraine crisis)
from around the  Specialisation using a
world (imports). This country's own
increases the variety of resources will lead to
goods available in a resource depletion.
country Specialisation increases
the rate of resource
depletion

Page 10 of 11
Practice questions:

1.Analyse why economics graduates are well-paid (6) w18/22)

2.Analyse how an individual’s earnings are likely to change over her or his
lifetime.

Exam tip
Questions can range from 2 mark 'define' questions (define wages) to 8
mark 'discuss' questions

1. Discuss whether an increase in wages will attract more people to

work in a specific industry)

To answer the discuss questions develop a two sided argument:

 On the one hand, yes it will attract more workers because...

 However, on the other hand it may not because of the non wage
factors (explain them)

If you look at both possibilities, then you have developed a balanced

argument.

2. Discuss whether younger workers are always paid less than

older workers

 Often they are because they are less skilled, lack experience etc.
 On the other hand, young workers may be highly trained in new
technologies which are driving growth in the tertiary sector & they will
be highly paid

Page 11 of 11