CIE IGCSE Economics 0455 Section 3 - Unit 18

UNIT 18 – Differences in Earnings The factors that determine the amount of pay received by workers are:     

Demand and supply of labour Bargaining power of employers and workers Government policies Public opinion Discrimination

Demand and Supply

Wage rate

Wage rate

͚The higher the demand for and the lower the supply of workers in an occupation, the higher the pay usually is.͛ Skilled Unskilled workers workers SL e.g. e.g. lawyers cleaners SL

DL

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DL

Quantity Quantity of labour of labour The supply of skilled workers, such as lawyers, is low, relative to demand for their services.

Only a limited number of people have the qualifications and ability to undertake the long periods of training required.

This shows that the demand and supply of skilled workers is fairly inelastic. If the workers demand for a higher wage, they can usually get away with it (up to a certain extent).

Anyone can become an unskilled worker, such as a cleaner, and so the supply of labour is often high compared to their demand.

Very little training is required for unskilled workers. For example a cleaner will be able to start cleaning after a few hours of training.

This shows that the demand and supply of unskilled workers is fairly elastic. If the workers demand for a higher wage, the employer will just hire another cleaner.

Bargaining Power of Employers and Workers  

The wages in a company are likely to be higher when the workers have a higher bargaining power than their employees.

If the workers are part of a trade union or an organization, wages can be negotiated on behalf of them.

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Doctors belong to a strong trade union and they have a very high bargaining power compared to cleaners. The strength in their bargaining power is they convey that only a limited number of people are as high skilled as them while, on the other hand, cleaners’ bargaining power is reduced by the fact that they are usually widespread and hence do not have a relatively strong union.

In many countries, workers in the public sector are more likely to belong to a trade union than workers in the private sector as governments are willing to negotiate with trade unions.

This is because one of the government’s prime roles is to ensure the welfare of their people.

Government Policies   

A government clearly influences wages in the public sector, but it can also affect wages in the private sector.

The policies promote the growth of the economy as well as tend to increase wages throughout the economy as they increase they increase the demand for labour.

A minimum wage is the lowest wage that a worker may be paid, as mandated by federal law.

Paying a wage rate below that is illegal.

The figure shows that the wage rate is being increased. However, there is excess supply in the market as the supply of people wanting to work at this wage rate exceeds the demand for workers’ labour. That is why some economists argue that setting the NMW above the equilibrium wage rate causes unemployment.

Other economists argue that a NMW can raise both the wage rate and employment. They believe that paying a higher wage to workers results in more motivation and higher productivity of them. This, combined with the increase in the demand for goods/services due to higher wages, can increase the demand for labour.

The figure shows that the possible increase in demand for labour may be equal to the NMW. 

The introduction of a national minimum wage may provoke some workers to push for a rise in wages in order to maintain their wage differential (difference in wages).

National minimum wage

Public Opinion   

In different regions, people consider different occupations more prestigious and believe that they should be highly rewarded.

Wage claims made by the workers can influence wage rates Public opinion can put pressure on the government to go through the wage rates being paid to public sector workers once more.

Discrimination   

Discrimination occurs when a worker(s) is (are) treated undesirably in terms of employment, wage rate, training received and promotional opportunities.

Women are suffering from discrimination in a lot of countries, even though it is becoming illegal. They get paid less than men However, there are some reasons why they do get paid less:  Less qualifications than men  Tend to be more concentrated in low paid occupations