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LABOUR

Definition
 Labour refers the physical or mental effort which people use to produce goods
and services.
 Labour refers to all wage-earning activities in the economy
 Labour is a factor of production employed by entrepreneurship

Introduction
 Many people earn their living through working for other individuals or firms,
from whom they get paid.
 Companies or businesses require the service of people to produce goods and
services
 Teachers, for example, use their mental effort to provide a service to students.
 A gardener uses manual effort to produce vegetables which other people need.
 In other words, labour is the effort that is required to do an economic activity
in which the person who performs the task is paid. .
 An economic activity refers to a process of producing goods and services that
the society requires to meet its people’s needs and wants.
 If a person does a service for which he/she is not paid, then that is not labour.
 A woman who is employed to cook at a hotel provides labour. However, the
effort of a woman who cooks food at home for her children’s consumption is
not classified as labour because it is not an economic activity.
 A person who plays soccer for a big team is paid for providing labour. However,
an
individual who plays soccer for leisure is not paid and cannot be classified as labour.
 Therefore, labour has a reward which is called a wage or salary.
 At times the term labour refers to the total number of people who are involved
in the production system of a firm or a country.

Reward for labour
 The price paid for the provision of labour is called wage or salary.
 The wage rate is the amount of money that is paid for a unit of time or a piece
of production.
 Some firms charge their wages per period of time such as hourly, daily, weekly
or monthly.
 Other firms and individuals charge their wage rate per unit of production. For
instance, one can be paid basing on a chair produced.

Time rate
 A time rate is the amount of money that an employee is paid per unit of time
such as an hour or a day.
 All employees who spend the same length of time doing the same job are paid
the same amount of money.
 Usually the amount of time which a person works per day is recorded down in
a document called a job sheet.

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ABC Hospital

Employee name: ruvarashe chimedza Title : nurse

Employee number: 011 Status: permanent
Department : Supervisor : claude makusha

Date Start time End time Regular Overtime Total

time
01/01/24 2200 0600 8 8
02/01/24 2200 0600 8 8
03/01/24 2200 0800 8 2 10
04/01/24 1800 0600 8 4 12
05/01/24 1800 0600 8 4 12
50


Time Sheet
 The table above shows the time, in hours, worked by ruvarashe chimedza in
week 1, of January 2024. The total number of hours worked is 50. Ruvarashe is
only paid for these 50 hours.
 The employer has a duty to pay the employees the agreed amount of money
regardless of the work output.
 If a person, for instance, is paid $10 per hour and works for 8 hours per day,
he/she gets $80.00 per day.

Piece rate
 With piece rate, a worker is paid according to the number of units of products
that are produced or sold.
 People who pick up coffee, for example, can be paid a certain amount of
money per kg of output.
 Vendors who sell airtime are paid certain cents per juice card sold.
 Therefore, the faster one works, the more output one produces and the more
that person earns.
 If a person works for a company that is in the process of planting trees, one can
be paid per every seedling planted. If a person is paid $2 for planting a tree, a
person who plants 15 trees per day gets paid $30.
 Another employee who plants 9 trees is paid $18.

Performance related pay

 Performance related pay refers to the money that is paid to an employee that
is based on how well one has achieved some targets.
 Commission is an example of performance related pay.
 Commissions are mainly paid to sales persons. The more revenue they
generate to the company, the more they are paid.

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 Usually commissions are set as a percentage of the revenue that an employee
generates for the company during a period of time.
 There are also performance related bonuses that employees can get.

Fixed annual rate

 Fixed rate is also called salary.
 This is paid regardless of the number of hours one has worked or regardless of
the units of production.
 Salaries are usually paid to senior employees such as managers and other
professional employees at a company.

Gross and net pay.

 Gross salary or wage mean all the money you have earned as pay before any
deductions are made.
 The gross pay may be constituted of basic wage, overtime payments,
commissions and bonus you receive during the working period.
 The net pay is the actual amount of money which is left after all the deductions
are done from your pay.
 Some examples of deductions include tax, levies and pension.

The difference between a wage and a salary

 A wage is a payment for the provision of labour based on an hourly, daily,
weekly or unit rate.
 A salary is a payment made for the provision of labour based on a period of
time, such as per month or per year.
 The total amount to be paid to an employee is agreed before an employee
starts work and is normally written on the contract of employment.
 A contract of employment is a written document that stipulates all the
conditions of employment, which both the employee and the employer must
abide by.
Employee Interests at work
 The following are aspects that employees normally value at their workplaces:
 Good wages
 Healthy and safety
 Fringe benefits
 Job security
 Good working conditions
 Growth opportunities

Wages
 Most employees want fair wages at their work places.
 Fair wage means that employees who are doing similar jobs are paid the same
amount of money.
 In many countries, the governments set minimum wages for people doing
certain types of work.

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 The employees expect their employer to pay them at least the minimum wage
set by the government.
 The employer is also expected to pay the agreed wage rate, which is usually
written on contracts of employment.

Health and safety

 Employees expect to work at a safe place.
 The employer has the responsibility to ensure that all employees are safe when
they are at work.
 All possible causes of danger at the work place must be eliminated.
 When dangerous chemicals and equipment are used, the employer should
ensure that employees are safe.
 They should have protective clothing or training on how to use dangerous
equipment.
 The company must help in giving first aid service to injured employees.
 If someone is injured, he/she must be taken for further health care at hospitals
and clinics.
 Injuries at work place increase the costs since employees need medical care.
 Therefore, firm must create rules and laws that help to maintain a safe and
health workplace.

Fringe benefits
 These other benefits that employees get from their employer apart from their
wages and salaries.
 Usually fringe benefits are provided to the workers so that they work for
company for a long time.
 Some companies provide health care through their own clinics at the premises.
 Other companies give medical aid services to their workers.
 Maternity leave is an example of such benefit.
 Maternity leave refers to the off work days that are given to a pregnant
employee, so that she gives birth while away from work.
 Other firms give vehicles to their senior employees.
 Some employees may be given accommodation to stay at the company
premises while others may be given housing allowances.
 Other benefits include telephone allowances, educational assistance,
subsidised meals and transport allowance.
Job security
 Job security is a guarantee that an employee will not lose
his/her job.
 The employee feels that he/she is secure at the company and will not lose
employment in the short term.
 Employees who have long term contracts such as five or more years feel more
secure than those who have short term contracts such as one month.
 Permanent employees have got more job security than casual employees.
 A permanent employee is one who has a contract which does not tell when
his/her employment with the company will end.

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 A casual employee is a worker who is employed on a short term basis and may
not be hired again when the contracts end.
 Employees who have job security are motivated to perform in the best way
they can.

Working conditions
 Working conditions involve a number of aspects such as time employees spend
at work, rest time and the work schedules.
 The time that employees spend at work must be reasonable and must not stop
them from doing other things they want.
 In Zimbabwe, the normal working time is eight hours a day.
 If employees work for twelve or more hours per day, then the working
conditions are not favourable.
 Employees need breaks during their working day. Some firms give their
employees tea breaks and lunch so that they rest.
 Employees may need day off work if they are sick or if any of their close family
member dies.

Growth opportunities
 Growth opportunities at work include promotions and training.
 Employees always look forward to be promoted at work.
 The company can train its employees or can send its employees for training
outside the company.
 Promotion means that an employee has been given a better and higher work
position that he/she had.
 A clerk, for example, can be promoted to become a supervisor.
 Growth opportunities attract people to work in a company for a long time.

Wage factors and non-wage factors that influence employee’s interest in the job

 The level of interest of an employee in the job is influenced by a number of

factors which can be wage related.
 Wage factors refer to the basic pay the employee gets, the wage rate, the
bonus, overtime payments and commission among others.
 Non-wage factors are other factors that influence a person’s choice of a job
that are not financial in nature.
 The examples of non-wage factors that influence an employee’s interest in the
job include hours of work, pension entitlements and promotion opportunities.

Types of workers
 Workers can be put into different classes based on their skill levels.
 Workers can be skilled, semi-skilled or unskilled.

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Skilled workers
 Skilled workers are those employees who have special skills and experience
that are required to do certain jobs.
 These workers usually have many years of training in their fields as well as
advanced knowledge and ability to perform the required tasks.
 Most skilled workers have attended universities, colleges and technical schools.
 However, some skilled employees may have acquired their skills due to the
training and experience they get at their work places.
 Doctors, teachers, lawyers, electricians and computer operators are examples
of skilled workers.
 Employees who are very educated and have high skill levels, such as lawyers
may sometimes be known as professionals.
Unskilled workers
 Unskilled workers are those individuals who do not need to have special
knowledge, skills, training and experience to do certain tasks.
 Usually these employees do manual work.
 People who perform the tasks are given instructions and demonstrations.
 They do not need to make any serious decisions.
 The tasks which they do are simple and repetitive.
 Unskilled workers are usually monitored and directed by their supervisors.
 The simple training they do at the workplace does not usually exceed a month.
 Gardeners, farm workers and cleaners are examples of unskilled workers.

Semi-skilled workers
 Semi-skilled workers have some basic skills and knowledge to perform their
tasks.
 They, however, do not need to have specialised knowledge and training to do
these tasks.
 Individuals who have finished high school can do such jobs.
 The tasks that are done by these workers are routine ones.
 The major decisions related to these tasks are done by someone superior at
work.

Trade unions

 A trade union is an organization formed by workers of an industry, occupation
or trade to promote their interests and rights.
 It is focused on improving working conditions and the living standards of the
employees.
 Various sectors in the economy have their trade unions.
 For example, workers in the agriculture sector are free to join a union called
General Agricultural Workers’ Union of Zimbabwe (GAPWUZ)
 Trade unions pursue common goals of their members.
 Some types of trade unions in some countries act as the suppliers of labour.
 On the other hand, the employers demand the service of labour.

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Functions of trade unions

 The main aim of the trade union is to improve the welfare of its members
through negotiating with their respective employers for the improvement of
their remunerations, benefits and working conditions.

• The trade unions perform the following functions:
1. Negotiating for increase in wages and related benefits.
 Some of the benefits that are negotiated for include housing allowances,
transport allowances, bonuses and medical attention.
2. Bargaining for improved conditions of services.
 The conditions of work that trade unions aim to improve include reasonable
working hours, rest time and improved health and safety standards.
 Other conditions of work which the unions bargain for include leave
entitlements, pension schemes and overtime.
3. Discussing with management on expected changes to the production system.
 Some of the changes include the introduction of new equipment and
machinery.
4. Assisting in dealing with employee grievances and disciplinary process.
5. Providing educational and training services to its members.
6. Bargaining for better recreational facilities and activities.
7. Recommending industrial action if there is a deadlock in collective bargaining
processes.
8. Negotiating with government for legislation that protects the rights and
interests of the workers.

Reasons why employees join the trade unions

a) to strengthen their bargaining power. The employees believe that if they are
united, they increase their strength to deal with the employer in collective
bargaining effort.
b) To receive education and training which trade unions organize.
c) to be represented in case of disciplinary and grievance issues.
d) to deal with issues of favoritism and discrimination at the work place.
e) to benefit from the advices and emotional support when dealing with their
employer or in times of problems such as bereavement.
f) To increase job security since the unions will fight on their behalf when
there are cases of unjustified dismissals and retrenchment.

Restriction of labour supply

 In some countries, trade unions act as the suppliers of labour.
 In such circumstances, the union controls the supply of labour in the industry.
 The following are some ways in which unions restrict the supply of labour:
1. The unions may lobby (bargaining) for the increase in the minimum working
age. It can bargain for a lower retirement age. This applies to unions where all

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workers in industry or occupation must be union members as a prerequisite
for employment.
2. Reducing the number of working hours decreases the supply of labour, in
terms of man-hours.
3. The union can set higher qualification levels than before. This reduces the
number of eligible job seekers. By reducing the labour supply, the unions have
a better bargaining position.

Collective bargaining
 Collective bargaining is a process that involves negotiations between the
employer and the employee representatives on issues that deal with working
conditions and remuneration.
 Remuneration means the money and benefits which are given to an employee
by the employer in the exchange for the service he/she offers.
 Collective bargaining involves discussions between the employer and
employees.
 The term collective is used because the negotiation is done between a group of
people who represent the rest of the workforce and the employer or employer
organization.
 Collective bargaining is aimed at improving the working relationship between
the employees and the employer.
 A good outcome from collective negotiation must be accepted by both parties.

Areas requiring collective bargaining between employer and the employees

1. How the wages or salaries must be calculated
2. Fringe benefits such as allowances for transport and housing, among others
3. Overtime and work shifts
4. Work place policies such as health and safety
5. Working hours and rest periods.
 Collective bargaining can be done at company level between the employer and
the employee representatives.
 It can also be done at an industry level between the trade union and the
employer organization.
 In Zimbabwe, such negotiations are done at National Employment Council (NEC)
level.

Importance of collective bargaining

 Collective bargaining creates peaceful industrial relations which is suitable for
high level of productivity.
 It creates a platform for the employees and the employers to share ideas on
various issues such as employee performance, productivity and working
conditions.
 It affords the employee to take part in the decision making process of the
company

Types of trade unions

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Closed shop union
 This type of union has complete control of its members.
 The employer agrees to hire and retainin employment only persons who are
members of the trade union
 In this arrangement, only union members can be employed in a particular
industry or firm.
 However, this type of union is no longer allowed in many countries.
Open shop
 This is a type of union where workers may choose to be members or non-
members.
 It is not compulsory for people to become members of the union before they
get employed in the industry or the firm.
Craft unions
 Members of this union possess a particular trade or skill.
 The members have certain qualifications related to the trade.
 Electricians or plumbers are people with specific trades who can form their
own craft union.
 Employees from different industries but in the same trade are free to join.

General Unions
 General unions represent employees from any industry or trade.
 People who work in different firms are free to join.
 A general union is different from union federation or trade council in that its
memebers are individual and not unions

Industrial unions
 Such unions represent people in a particular industry.
 In Zimbabwe, people who work in the agricultural industry have got their own
union.
 In this union, members who do different trades join as long as they work in the
same industry.
 The General Agriculture Union of Zimbabwe represents workers in the
agriculture sector.

White collar unions

 The members of this type of union do non-manual jobs.
 Most of its members work in the service industry.
 Teachers’ unions are examples of white collar trade unions.
 In Zimbabwe, most teachers are members of Zimbabwe teachers Association
(ZIMTA) and Progressive Teachers Union of Zimbabwe (PTUZ).
Occupational Union
 Only members of a particular occupation can join this union.
 The members must have certain qualifications.
 Most of such unions exist in the service sector.
 People who work in banks or insurance firms can form occupational unions.
 Teachers unions are examples of occupational unions as well.

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Workers’ committees
 A workers’ committee is a group of employees that are elected by the rest of
the workers at a firm so that it represents their interests.
 The workers’ committee cooperates and liaises with the trade union in
promoting the interests and the rights of the employees.
Duties of the workers’ committee
a) The workers’ committee represents the interests of all the employees at the
work place.
b) The members of the committee participate in negotiations with the firm’s
representatives on all issues related to working conditions and wage.
c) The workers’ committee is involved in collective bargaining at the work place.
d) It works alongside management to make sure that all agreements between
them and the employer are followed.
e) It is involved in finding solutions to the employees’ grievances.
f) It represents other employees during disciplinary processes.
g) It cooperates with management in improving productivity.
h) It ensures that the work place is safe to work at.

Employers’ organization
 The employers’ organization is an organization that is formed by employers
from the same industry.
 Its aim is to work towards achieving the interests of its members.
 It is involved in negotiation with the trade unions in issues relating to working
conditions and remuneration.
 It bargains with the government and other business organizations for the
interest of its members.
 The employers’ associations often liaise with trade union representatives on
issues that affect both organizations.
 The following are some of the employers’ organizations in Zimbabwe:
 Zimbabwe National Chamber of Commerce (ZNCC) and Bankers Association
of Zimbabwe

Demand and supply of labour

 Labour is one of the most important factors of production.
 Labour consists of all the number of people who are available and willing to
take part in the production process.
 It includes the physical and mental effort required for production.
 The labour market involves the interaction of potential suppliers and buyers of
labour.
 The individuals and households sell their labour while firms buy the labour.
 In the labour market, there is the exchange of information between the
suppliers and buyers of labour. They can exchange information regarding
conditions of work and the wage rates.
 There is a labour market for each type of occupation.
 Industries and firms demand labour with certain skills and expertise.

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 People are willing to supply their labour depending on the wage rate and other
non-wage factors.

Demand for labour

 The demand for labour is derived demand, meaning that labour is not required
for its own sake but to produce goods and service that consumers desire.
 The demand for labour refers to the man-hours that firms are willing to have to
produce goods and services at a given wage rate and during a specific period of
time.
 Man-hours are the total amount of time, in hours, that employees spend in the
production process.
 If demand for certain products increases firms employ more people so that
more goods and services are produced.
 The higher the demand for goods and services, the more labour is required to
produce more of such products.
 If the demand for products goes down, firms are forced to reduce the number
of employees who produce such goods.
 Therefore, the wage rate and the productivity of the employee determine the
number of employees that a firm require.
 The higher the wage rate, the lower the number of employees recruited by a
firm.

Individual firm demand for labour

 The individual firm’s demand for labour is determined by the average output of
each employee per hour and the revenue generated from each unit of output.
 Whether or not more labour will be employed is also determined by the wage
rate and prices of factors of production that can be substituted for labour, such
as capital.
 An increase in price of a substitute factor of production such as capital leads to
an increase in the demand for labour.
 There will be an increase in the demand of labour if there is an increase in the
price of the good produced or an increase in labour productivity.
 The individual demand for labour is a downward demand curve for labour
curve as shown in below.

Demand curve for labour

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 A firm employs more workers if the wage is low.
 If the wage increases, a firm reduces the number of its employees.
 In the diagram above, the firm employs 100 workers when the wage is $110.
 If the wage increases to $200, the firm reduces its employees to 80.

Market demand for labour

 The total demand for labour in the economy is called aggregate demand for
labour.
 The aggregate demand for labour is obtained by adding the different demand
curves of firms requiring the same type of skills or expertise.
 For example the aggregate demand of accountants is obtained by adding up all
job vacancies for accountants in the country or economy.
 The aggregate demand curve for labour is downward sloping as shown below:

Aggregate demand Curve for labour

 The graph shows that if the wage rate increases, the demand for labour
decreases.
 When the wage decreases, the demand for labour increases.
 More labour will be required if the economy is expanding.
 In the diagram above, if the wage is at w1 firms employ at L1.
 If the wage increases to W2, the number of employees decreases to L2.

Factors that influence the demand of labour

a) increase or decrease in the number of firms in an economy
 For example, if there is a recession, many firms close down, leading to the
aggregate demand of labour to decrease.
 If there is an economic boom, new companies are created hence the aggregate
demand of labour increases.
b) A change in the price of a good or service will cause companies to employ
more people.
 For example, an increase in the price of a product leads to an increase in the
demand of labour that is required to produce that product.
c) If a new substitute for labour is introduced, then the aggregate demand for
labour decreases.

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 For example, an introduction of a new machinery or equipment that does the
activity used to be carried out by workers leads to a decrease in the demand
for labour.
 A specific example has been the introduction of the automated teller machine
which has led to the reduction in the number of bank tellers.
d) A change in the level of economic activities in a country leads to a change in
the total demand for labour.
 An economic boom increases the demand for labour whilst a recession leads to
a fall in the demand of labour.
e) A change in government regulations on labour affect the market demand of
labour
 For example, new regulation compelling employers to provide certain safety
equipment to workers affects the cost of labour thereby affecting its demand.
f) Changes in the demand of goods and services affect the demand for labour
that produces such products.
 When consumers demand more goods and services, firms respond by
employing more labour to meet the new demand level.
 Firms may increase the number of hours the existing employees work or
choose to employ more people.
 Changes in consumer demands over time is influenced by population change
and changes in preferences.
Supply of labour
 The aggregate supply of labour is the total number of all the people who are
available and willing to offer their services in the production process.
 It is composed of all the people who are in the working age who are willing to
offer their services for the exchange of a wage or salary.
 Therefore, supply of labour is the total number of hours which all active people
are willing to offer in return for payment at a given wage rate.

Factors affecting the supply of labour

a) change in the wage rate
 If the wage rate for a class of workers increases, there will be more supply of
that labour.
 For example, if the wage of insurance workers increases, more workers will be
willing to join the insurance sector.

b) Changes in non-wage factors like working conditions or fringe benefits affect

the supply of labour for a particular firm or industry.
 For instance, a decrease in the working hours, introduction of pension scheme
or improved safety measures in an industry attracts more labour.
 The other non-wage factors that influence the supply of labour include chances
for promotions, job security and support during time of illness or bereavement.
c) Changes in educational and professional qualifications required for a particular
job influences the supply of labour.

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 Certain professions have introduced first degrees as requirement for
employment. This means that people without such qualification can no longer
be available to supply their labour to such occupations.
d) Change in population structure affects the supply of labour.
 The change in age structures and other demographics affect the supply of
labour.
 For example, if there is an increase in the ageing population and a decrease in
the economically active group, the supply of labour falls.
 If more economically active people leave the country to work in other
countries, the supply of labour decreases.
 Zimbabwe has experienced the outward movement of people to South Africa,
UK and Australia, for example, thereby decreasing the aggregate supply of
labour in the country.
e) Change in population trends such as a change in school leaving age and a more
acceptancy of women as a reliable source of labour.
f) mobility of labour
 Labour mobility refers to the ease with which workers switch from one
occupation to the other or moving from one geographical area to the other in
search of employment.
 If more people move into the country, the supply of labour increases.
 If people move out of the country, the supply of labour decreases.
g) Emergence of a pandemic such as Hiv/Aids or Ebola may lead to the death of
the economically active people, thereby reducing the supply of labour.

The individual supply of labour

 The number of hours an individual is willing to spend in employment is
determined by personal preferences.
 Each individual decides how he or she divides his or her time between leisure
activities and work.
 The number of hours an employee is willing to spend at work tend to increase
as the wage rate increases, but up to a certain point.
 Once an individual is able to raise the amount of money one desires, he/she
may choose to limit the amount of time spent at work, in order to have time to
spend with family or doing leisure activities.
 Therefore, the individual labour supply curve bends backwards as shown

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Market labour supply

 The market supply of labour is influenced by a number of factors such as skills
level, qualifications required and behaviors of trade unions.
 The backward bending supply curve that applies to individual supply of labour
does not apply to the entire market.
 The reason is that an increase in the wage rate attracts many people to enter
the labour market.
 The limiting of hours worked by individual workers cannot occur at the same
time, making the market demand curve to be downward sloping.
 When workers sell their labour, the price they charge is influenced by several
factors on the supply side and demand sides.
 The most basic determinant of wage is the number of workers available (supply)
and the number of workers needed (demand).

Wage determination
 Wage determination is the process whereby firms set wages for its workers.
 After a firm establishes the wage rates for its workers, it comes up with a wage
structure.
 A wage structure is a list of jobs in the firm and their agreed wage rate.
 The differences in wages may arise as a result of the performance and ability of
the workers at work.
 The trade unions can influence the wage differences through their bargaining
powers.

Wage determination under perfect competition

 Under perfect competition, the wage is determined by supply and demand of
labour.
 A perfectly competitive labour market exists when:
a. Many firms compete for specific labour.
b. The employees have identical skills.
 Both the firms and the workers are wage takers, since neither can influence
the wage rate.
 In this situation there are no trade unions, since union negotiated wages are
generally not the result of market supply and demand.

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
 Competitive labour market illustrates how the wage rate is determined by the
demand and supply of labour.
 W represents the wage rate that is determined by the supply and demand of
labour.
 Under pure competition, the wage rate is set at the intersection of the labour
supply curve and the demand curve.
 As is true of supply curves in general, the higher the wage rate the lower the
demand.
 The higher the supply of labour, the lower the wage rate.

Marginal Revenue Product

 The price of labour is represented as a marginal cost (MC) and the employer's
demand for labour is represented by the marginal revenue product (MRP).
 Employers will continue to hire workers as long as the marginal revenue
product of the last worker is greater than his marginal revenue cost.
 As long as the revenue earned by the workers is greater than their cost, the
employer will increase profits by hiring more workers.
 The labour market equilibrium occurs at the intersection of labour supply curve
and the labour demand curve.
 In a perfectly competitive labour market, the supply of labour is perfectly
elastic, so a firm can hire all the workers that it wants at the prevailing market
wage rate.
 The firm will hire enough labour until the MRP of the last worker is equal to his
MC.
 MC is constant and is equal to the resource price, or in this case, the wage rate
 The area represented under the MC line is equal to the cost of labour.
 Above that line and below the MRP line is the cost for land, capital and
entrepreneurship which includes a normal profit.

Imperfect labour markets

 Most labour markets operate under imperfect competition.

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 The main cause of this imperfection is the absence of accurate information to
employees and employers

factors causesing of imperfection in the labour markets:

a) Existence of a sole buyer of labour who is called a monopsonist.
 The excessive power of monopsonist make them dictate the wages they want
to pay their workers.
b) imperfect knowledge about the existing market situation.
 For example, job seekers are not aware of all employment opportunities in the
economy.
 Employers do not know the existence of all potential employees, their abilities
and qualifications.
c) labour is heterogeneous and not homogenous.
 This simply means that workers can never be the same.
 Even two employees who have the same qualifications are not the same
because they have different abilities, aptitudes, personalities and experience.
d) Immobility of labour
 Potential employees are not always free to move from one occupation to the
other or from one area to another.
Trade Unions
 In order to gain bargaining power over working conditions and remuneration,
employees form their associations which are called trade unions.
 On the other hand, the employers form their own associations referred to as
employers’ organizations.
 A trade union is an organization formed by workers of an industry, occupation
or trade to promote their interests and rights.
 It is focused on improving working conditions of employees as well as
determining the wage rate for the workers.
 Trade unions are involved in determining wages by either controlling the
supply of labour or by directly negotiating with the employers.
 Trade unions can also take measures to increase the demand of goods and
services in the country.
 This may involve participation in the advertisement of certain products.
 Trade unions can help in increasing productivity of employees, which leads to
higher wages

Restriction of labour supply
 Trade unions, sometimes, act as the supplier of labour.
 In such circumstances, the union controls the supply of labour in the industry.
ways in which unions restrict the supply of labour
 By reducing the labour supply, the unions have a better bargaining position.

a. The unions may lobby (bargain) for the increase in the minimum working age.
b. It can bargain for a higher retirement age.
 This applies to unions where all workers in industry or occupation must be
union members as a prerequisite for employment.

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c. Reducing the number of working hours which reduces the labour supply, in
terms of manhours.
d. The union can set higher qualification levels than before. This reduces the
number of eligible job seekers.

Collective bargaining •
 Collective bargaining is a process that involves negotiations between the
employer and the employee representatives on issues that deal with working
conditions and remuneration.
 Remuneration means the money and benefits which are given to an employee
by the employer in the exchange for the service he/she offers.
 Collective bargaining involves discussions between the employer and
employees.
 The term collective is used because the negotiation is done between a group of
people who represent the rest of the workforce and the employer or employer
organization.
 A good outcome from collective negotiation must be accepted by both parties.
 The employer and the employees negotiate on;
a. the wages or salaries that employees should get
b. How the wages or salaries must be calculated
c. Fringe benefits such as allowances for transport and housing,
d. Overtime
e. Working hours and rest periods.
 Therefore, trade unions bargain with the employers for high wages.

Base for wage increment demand by trade unions or employees

a) increase in productivity
 Productivity refers to output per worker
 leads to most unions to demand a rise in wages since workers will be producing
more
b) Rise in cost of living in a country
 trade unions tend to demand an increase in pay so as to offset the decrease in
the real income of the workers.
c) increase in the profit of the firm
 A firm earns profit through the efforts of workers hence they a share of it
d) If the wages of employees in similar jobs but who work elsewhere has
increased, the employees may demand a pay rise.
e) The type of product that is produced in a firm determines the bargaining
power of the employees.
f) If employees who work in critical services of the economy demand a pay rise,
the employer is most likely to be willing to reach an agreement.
 Examples of such essential services include the health care and security
departments.
g) Trade Union power, union that controls the supply of labour has a strong
bargaining power.
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 However, if the employer can easily get non-union employees, it will not
concede easily to the demands of the employees.
h) The elasticity of demand of the good or service determines the bargaining
power of the employees.
 The firm that produces goods with an inelastic demand can easily increase the
wages, because it can pass on the cost of labour to the consumers by
increasing the price of the product.
 It is difficult to pass on the cost of labour to the consumer if the elasticity of
demand of the product is very elastic.
i) The ease to shift from using labour to machinery influences the bargaining
power.
 If it is easy to substitute labour for machinery in production, the union will
have very low bargaining power.
 They will be afraid that most of the employees may be laid off.
j) When a firm has a very high proportion of labour costs, it will be very difficult
to increase the wages.

Government involvement in wage determination

 The government influences the wage levels in the country through setting the
wage policy and introducing the minimum wage.

Wage policies

 Most governments make laws governing wage structure and payment in the
country.
 The wage policy refers to the regulations that control the determination of
wages in the country.
 The government sets regulations that are targeted at reducing wage
differentials in the country.
 It also sets laws that set out how wage rates are decided.
 In Zimbabwe, the labour laws require the employer and the employees to
negotiate and agree on the wages which the different categories of employees
in an industry must earn.
 The negotiation is done between the employer associations and trade unions
in a process that is called collective bargaining.
 During collective bargaining, the national minimum wage for that industry is
set.
 The government is also involved in enforcing the payment of the minimum
wages.
 The wage structure that is arrived at during collective bargaining reduces the
wage differentials in the industry.
 In setting the minimum wages the productivity of the sector is taken into
consideration.
 The government also sets laws that disallow wage discrimination.
 Wage discrimination is a process where people who do the same job are paid
different wages because of their sex, race, religion, background and so on.

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 There are also laws that limit the bargaining power of the trade unions so that
they would not bargain more than the competitive wage level.
 Very high wage rates increase costs of production leading to low domestic
competitiveness of the products.
 The wage policy also stipulates how the wage calculation must be done.
 In Zimbabwe, the wage policy points out how the daily, weekly and monthly
rates must be paid.
 It also stipulates what the employee must be paid in case of sickness, during
vacation, injury at work and so on.

Minimum wage
 The minimum wage is set as a means to make sure that the workers are able to
attain a certain level of standard of living.
 The minimum wage can lead to the supply of labour to increase but
unemployment may rise as firms aim to employ fewer employees in order to
cut the wage bill.
 However, the minimum wage exerts an impact on the industry.
 The minimum wage usually increases the cost of production.
 As a result, some firms reduce the size of the labour force by retrenching some

workers.

 As the wage rate rises from W to WY, the firm reduces labour from point Q to
QX.
 A wage rise from W to WY causes excess in supply of labour because demand
of labour is less than the supply of labour.
 Sometimes minimum wage creates unemployment as firms try to match the
wage rise with the profit they obtain from such labour

Wage differentials

 Wage differential refers to the differences that exist in the wages of workers
who have different or similar skills in an industry or the economy.

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 In some cases there is a lower wage difference between certain jobs, whereas
in other circumstances there are huge differences between the wage rates of
different jobs.
 Wages differ across countries, industries, occupations, gender, age,
race ,companies, nations, regions and individuals.
 Wages refer to the price that workers receive for their labour in the form of
bonuses, royalties, commissions, and fringe benefits such as paid vacations,
health insurance and pensions.
 The wage rate is the price per unit of labour.
 When workers sell their labour, the price they can charge is influenced by
several factors on the supply and demand sides.
 The most basic determinant of wages is the number of workers available
(supply) and the number of workers needed (demand).
 Wage levels are shaped by the skill sets workers bring to the work place and
the skills that the employers need as well as the location of the jobs being
offered.
 Wages will be higher where the demand for labour is greater than the supply.

Factors influencing wage differentials

1. Skills and qualifications.

 Demand for skilled labour is higher than the demand for semi-skilled workers
yet the supply of skilled labour is low. The supply of semi-skilled labour is fairly
high.
 The high demand for skilled workers and its low supply leads to a high wage
rate.
 Highly skilled workers are often in inelastic supply and a high demand for them
makes the wage rate to increase in an industry.
 For that reason, a qualified lawyer earns a higher salary as compared to a
cleaner.
 The supply of unskilled and semi-skilled labour is elastic. Therefore, their wage
rate is generally lower than that of skilled labour.

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 W stands for wage rate.

 Graph (a) shows that the supply of cleaners is elastic.
 Cleaners have low wages because they have a high supply since no special skill
or qualification is required.
 Doctors supply curve is inelastic as shown in graph (b), giving rise to higher
wages.

2. Differences in labour productivity and revenue creation o

 Highly efficient workers have the ability to generate more revenue for a firm
and are rewarded with higher wages.

Wage based on productivity of labour

 Other things being equal, if a worker has higher productivity s/he deserves a
higher wage.
 Workers with productivity represented by D2 deserve to earn more wages at
point W2.
 Workers with low productivity represented by D1 earn low wages at point W1.
 Top sports stars can command top wages because of their potential to
generate extra revenue from ticket sales since many people would like to
watch them playing.

3. Monopsony power
 The theory of monopsony suggests that employers will have market power
in determining wages and therefore are able to pay workers less than their
MRP.
 A monopsony is a situation where there is only one buyer of labour in the
economy.
 In terms of employment, monopsony exists when there is only one
employer of a certain category of employees in an area.
 A traditional monopsony would be a single employer of workers in a town, e.g.
steel mill owner or coal mine owner.

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 With no other choice of work, workers have to accept the conditions and
wages of the monopsony employer even if these wages are very low.
 In a modern economy, these single employers are quite rare but arguably
many firms have significant monopsony power and have market power in
setting wages.


 the wage equilibrium is W1 which is determined by market forces.
 A monopsony will pay wages valued at W2 to maximize its profits.
 However, W2 is below the marginal revenue curve.

4. Trade unions power.

 Unions might exercise their bargaining power to offset the power of an
employer.
 A particular occupation might have powerful unions who bargain for high
wages.
 As a result, workers who are represented by trade unions usually earn more
wages than the workers who do not have trade union representation.

5. Segregation in the labour market

 The gender pay gap exists in some sectors of the economy due to bias for one
sex over the other.
 Although this cause of wage differentiation is not high in Zimbabwe, it exists in
other countries.
 Some women are paid less than men although they do the same job in the
same organization or industry.

6. Traditions and stereotypes

 Segregation is frequently linked to traditions and stereotypes.
 While around 60% of new university graduates are women, they are few in
fields like mathematics, computing and engineering.
 Fewer women work in scientific and technical jobs.
 This results in women to work in lowly valued and lower paid sectors of the
economy.

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 Because of these traditions and stereotypes, women are expected to reduce
their working hours or to stop working in order to carry out child or elderly
care roles at home.

7. Compensating risk
 Higher pay can often be some reward for risk-taking in certain jobs, working in
poor conditions and having to work for very long hours.
 Workers who work in war torn areas are paid more for the risk they take.
 Similarly, workers who work in the mining sector are paid more due to the risks
involved when working underground.
 Risky jobs pay more wages because very few are willing to take the risks
involved in working such jobs.
8. reward for human capital
 In competitive labour market, wages and salaries are high to compensate
workers for opportunity costs which they incurred in pursuing further training
and personal development.
 There is an opportunity cost in acquiring qualifications.
 The opportunity cost of staying longer in full or part-time education is the
earnings that the individual could have had during that period.
 Certain qualifications are expensive to acquire thus resulting in higher wages.

9. Geographical differences
 In certain regions of the country, wages are higher than in other regions.
 This is because of a greater demand for their skills, knowledge and high costs
of living.
 For example, the cost of living in Harare is greater than the cost of living in
Chipinge.
 As a result, workers in Harare are more likely to be paid more than workers in
Chipinge.
10. Profitability of different industries
 Some industries such as financial services have traditionally been able to make
higher profits. This leads to higher wages especially when pay / bonuses are
linked to performance.
11. Ethnic group discrimination
 Wages may also differ basing on the differences between ethnic groups or
races.
 Ethnicity can be in language or culture or the society that people live in.
 In Zimbabwe, there are many different ethnic groups. Ndebele and Shona are
the major ethnic groups in Zimbabwe.
 In Zimbabwe, however, there has not been any recorded wage differentials
basing on ethnicity.
 Differences between wages may arise due to races. Before independence,
whites were normally earning very high wages while blacks received very low
wages.
 The problem of differences between wages of whites and blacks was
addressed through the laws that were created by the government.

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The government policy on wage differences in the country.

 The government normally strives to ensure that workers get decent
remuneration.
 It sets the minimum wage of its workers.
 Many governments are involved in setting minimum wages or different
industries.
 In Zimbabwe, the government, trade unions and the employers negotiate for
minimum wages a situation known as triapitite negotiations
 A minimum wage is the lowest wage rate that workers in a sector or industry
should earn.
 The government also sets laws against discrimination and unfair labour
practices which help to reduce or eliminate unnecessary wage differences.

Occupational prestige
 Occupational prestige refers to the respect and worthiness that people assign
to a job.
 This is because some jobs are considered more important than others.
 The society can assign more prestige to some jobs.
 Owners of companies can assign greater importance to some jobs.
 Jobs that are considered more important are better paid than jobs which
people think are less important.

The prestige of jobs can be influenced by:

 The resources that the job holders control,
 The amount of respect that comes from the subordinates, o
 The knowledge and skills that the job holders have
 And the work environment and conditions of service.

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