Workers

Labourers need wages to

satisfy their wants and
needs.

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TABLE OF CONTENTS
Wage
Labour Market
Differentials
01 Compensation for working. 02 What effects the level of
compensation and the type.

Division of
Labour/Specialisation
03 Types of jobs.
Payments for labour:
• Time-rate wage
• Piece-rate wage
• Salary
• Performance-related payments
Time-rate wage:
Wage given based on the number of hours the employee has
worked.
Overtime wages are given to workers who have worked extra no.
of hours, which will usually be 1.5 times or even twice the normal
time rate.

Piece-rate wage
Wage given based on the amount of output produced. The more
output an employee produced, the more wage he/she earns. This
is used in industries where output can be easily measured and
gives employees an incentive to increase their productivity.
alary
Monthly payments made to workers, usually
managers, office staff etc. usually in non-manual
jobs.

Performance-related payments:
Payments given to individual workers or teams of
workers who have performed very
well. Commissions given to salespersons for selling to a
targeted no. of customers is a form of performance-
related pay.
 What affects an individual’s
choice of occupation?Non-wage factors:
• hours of work
• holiday entitlements
Wage factors: • promotion prospects
The wage conditions of a job/firm such as the • quality of working environment
pay rate, the prospect for performance- • job security
related payments and bonuses etc. will be • fringe benefits (free medical insurance,
considered by the individual before he company car, price discounts on company
chooses a job. products etc.)
• training opportunities
• distance from home to workplace
• pension entitlement
Labour demand is the number of workers
demanded by firms at a given wage rate. Labour demand is

01
called ‘derived demand’, since the level of demand of a product
determines that industry’s demand for labour. That is, the higher
the demand for a product, the more labour producers will
demand to increase supply of the product.

When the wage increases, the

demand for labour contracts
(and vice versa).
 Labour supply is the number of
workers available and ready to
work in an industry at a given wage
Labour demand is the number of workers demanded bythefirms
rate. When at aincreases,
wage rate given
the supply of labour extends, and vice
wage rate. Labour demand is called ‘derived demand’, since the level of demand of a
versa.
product determines that industry’s demand for labour. That is, the higher the demand

01
for a product, the more labour producers will demand to increase supply of the
product.

When the wage increases, the demand for labour contracts (and vice versa).
Backward-bending labour supply
curve.
We also know that as the number of hours
worked increases, the wage rate also increases.
However, when a person get to a very high
position and his wages/salary increases highly,
the number of hours he/she works may
decrease. This can be shown in this diagram,
called a backward-bending labour supply
curve. CEOs and executive managers at the top
of the management tend to have backward-
bending labour supply curves.
 Just like in a demand and supply curve analysis, labour demand and
supply will extend and contract due to changes in the wage rate.
Other factors that cause changes in demand and supply of
labour will result in a shift in the demand and supply curve of
labour.
 Other factors that cause changes in labour supply
and demand

Shift in labour Shift in labour

demand curve supply curve
• Consumer demand for goods and services: • Advantages of an occupation:
• Productivity of labour: • Availability and quality of
• Capital: education and training:
• Non-wage employment costs: • Demographic changes:
 Shifts in Labour Demand Explained

Consumer Price and productivity Productivity of Non-wage

demand for goods of capital: employment costs:
labour:
and services: Capital is a substitute resource Sometimes, employment tax,
The more productive
The higher the for labour. If the price of welfare insurance for each
labour is, the more the
demand for products, capital were to lower and its employee etc. will have to be
demand for labour.
the higher the demand productivity to rise, firms will paid by the firm. If these costs
for labour. demand more of capital and increase, firms will demand
labour demand will fall less labour.
(labour demand curve shifts to
the left).
 Shifts in Labour Supply Explained

Advantages of an Availability and quality of Demographic

occupation: education and training: changes:
The different advantages a job If quality training and education for The size and age structure of the
can offer to employees will a particular job, say pilots, is population in an economy can
affect the supply of labour- the lacking, then the labour supply for it affect the labour supply. The
people willing to do that job. will be low. When new education labour supply curve will shift to
Example: if the number of and training institutes open, the the right when more people come
working hours in the airline labour supply will rise (labour into a country from outside
industry increases, the labour supply curve shifts to the right). (immigration) and when the birth
supply there will shift to the left. rate increases (more young
people will be available for
work).
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.
02
Wage Differentials
• Different abilities and qualifications:
• Risk involved in the job:
• Unsociable hours:
• Lack of information about other jobs and wages:
• Labour immobility:
• Fringe benefits:

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 Wage Differentials explained.
Different abilities and Risk involved Unsociable
qualifications: in the job: hours:
Risky jobs such as rescue Jobs that require night
When the job requires more skills operation teams will gain a shifts and work at other
and qualifications, it will have a higher wage rate for the unsociable hours are
higher wage rate. risks they undertake. paid more.

Labour Fringe
Ignorant about other benefits:
immobility:
jobs and wages: If labour mobility is high, workers can jobs which offer a lot of fringe
Sometimes people work for less move to jobs with a higher pay. Labour benefits have low wages. But
wage rates simply because they immobility causes people to work at a sometimes the highest-paid
do not know about other jobs low wage rate because they don’t have jobs are also given a lot of
with higher wage rates. the skills or opportunities to move to fringe benefits, to attract
jobs with a higher wage. skilled labour.
Why do wages differ
between people doing the
same job?
• Regional differences in labour demand and
supply:
• Fringe benefits:
• Discrimination:
• Length of service:
• Local pay agreements:
• Government labour policies:
• Public-private sector pay gap:
• Economic sector:
• Skilled and unskilled workers:
• Gender pay gap:
• International wage differentials:
 Same Job, Different wage

Regional differences in
labour demand and supply

For example, if the demand in an area for accountants is very high, the wage rate for
accountants will be high; whereas, in an area of low demand for accountants, the wage rate for
accountants will be low. Similarly, a high supply of accountants will cause their wages to be
low, while a low supply (scarcity) of accountants will cause their wages to be high. It’s the law
of demand and supply! Regional differences in labour demand and supply: for example, if
the demand in an area for accountants is very high, the wage rate for accountants will be high;
whereas, in an area of low demand for accountants, the wage rate for accountants will be low.
Similarly, a high supply of accountants will cause their wages to be low, while a low supply
(scarcity) of accountants will cause their wages to be high. It’s the law of demand and supply!
Same Job, Different wage
• Fringe benefits:
some firms which pay a lot
of fringe benefits, will pay
less wages, while firms (in
the same industry) which
pay lesser fringe benefits
Discrimination:
will have higher wages. workers doing the same work
may be discriminated by
gender, race, religion or age.
 Length of service: Local pay agreements:
Some trade unions may agree a national
Some firms provide extra pay for wage rate for all their members –
workers who have worked in the thaerefore all their members (labourers)
firm for a long time, while other will get a higher wage rate than those who
firms may not. do the same job but are not in the trade
union. This depends on the relative
bargaining power of the trade union.

Same Job, Different wage

Same Job, Different wage
Government labour policies:
Wages will be fairer in an economy where the
government has set a minimum wage policy.
The government’s corporate tax policies can
also influence the amount of wage firms will be
willing to pay out.
Public-private sector pay gap:
Public sector jobs usually have a high wage rate.
But sometimes public sector wages are lower than
that of the private sector’s because low wages can
be compensated by the public sector’s high job
security and pension prospects.
Same Job, Different wage
Economic sector:
Workers in primary activities such as
agriculture receive very low wages in
comparison to those in the other
sectors because the value of output
they produce is lower. Further still,
workers in the manufacturing sector
may earn lesser than those in the
services sector. But it comes down to
the nature of the job itself. A
computer engineer in the
manufacturing sector does earn more
than a waiter at a restaurant after all.
Same Job, Different wage
Skilled and unskilled workers:
Skilled workers have a higher pay than unskilled workers,
because they are more productive and efficient and make lesser
mistakes.

International wage differentials:

Developed countries usually have high wage rates due to
high incomes, large supply of skilled workers, high demand
for goods and services etc; while in a less-developed
economy, wage rates will be low due to a large supply
unskilled labour.
Same Job, Different wage
Gender pay gap:
Men are usually given a higher pay than women. This
is because women tend to go for jobs that don’t require
as much skill as that is required by men’s jobs
(teaching, nursing, retailing); they take career breaks to
raise children, which will cause less experience and
career progress (making way for low wages); more
women work part-time than full-time. Sometimes, even
if both men and women are working equally hard and
effectively, discrimination can occur against women.
Division of
Labour/Specialisation
Division of labour is the concept of dividing the
production process into different stages enabling
workers to specialise in specific tasks. This will help
increase efficiency and productivity. Division of
labour is widely used in modern economies. From the
making of iPhones (the designs, processors, screens,
batteries, camera lenses, software etc. are made by
different people in different parts of the world) to
your textbook; images, text and front and back cover.
Advantages to workers:
Become Better future job
skilled: prospects:
workers can get because of the skill and training
skilled and they acquire, workers will, in the
experienced in a future, be able to get better jobs
specific task which in the same field.
will help their future Saves time and expenses in
job prospects training
 Disadvantages to workers:
• Monotony: doing the same task repetitively might make it boring and
lower worker’s morale.
• Margin for errors increases: as the job gets repetitive, there also
arises a chance for mistakes.
• Alienation: since they’re confined to just the task they’re doing,
workers will feel socially alienated from each other.
• Lower mobility of labour: division of labour can also cause a
reduced mobility of labour. Since a worker is only specialised in doing
one specific task(s), it will be difficult for him/her to do a different job.
• Increased chance of unemployment: when division of labour
is introduced, many excess workers will have to be laid off.
Additionally, if one loses the job, it will be harder for him/her to find
other jobs that require the same specialisation.
Advantages to firms:
• Increased productivity: when people specialise in particular tasks, the
total output will increase.
• Increased quality of products: because workers work on tasks they
are best suited for, the quality of the final output will be high.
• Low costs: workers only need to be trained in the tasks they specialise in
and not the entire process; and tools and equipment required for a task will
only be needed for a few workers who specialise in the task, and not for
everybody else.
• Faster: when everyone focuses on a particular task and there is no need
for workers to shift from one task to another, the production will speed up
More Advantages to firms:
• Efficient movement of goods: raw materials and half-finished goods
will easily move around the firm from one task to the next.
• Better selection of workers: since workers are selected to do tasks
best suited for them, division of labour will help firms to choose the best
set of workers for their operations.
• Aids a streamlined production process: the production process will
be smooth and clearly defined, and so the firm can easily adapt to a mass
production scale.
• Increased profits: lower costs and increased productivity will help
boost profits.
Disadvantages to firms:

Increased Danger of overproduction:

As division of labour facilitates mass
dependency: production, the supply of the product may
The production may come to
a halt if one or more workers exceed its demand, and cause a problem of
doing a specific task is excess stocks of finished goods. Firms need to
absent. The production is ensure that they’re not producing too much if
dependent on all workers there is not enough demand for the product in
being present to do their jobs. the first place.
Advantages to the economy:
Better utilisation of human resources in
the economy as workers do the job they’re best at, 50%
helping the economy achieve its maximum output.

Establishment of efficient firms and

industries, as the higher profits from division of labour 75%
will attract entrepreneurs to invest and produce.

Inventions arise as workers become skilled in

particular areas, they can innovate and invent new 100%
methods and products in that field.
 Disadvantages to the economy:
Labour Reduces the Creates a factory
immobility: creative instinct: culture

Occupational Of the labour force in

immobility may which brings with it the
the long-run as they are
evils of exploitation,
arise because only able to do a single
poor working
workers can only task repetitively and the
conditions, and forced
specialise in a previous skills they
monotony.
acquired die out.
specific field.
References:
• Lintha. "Workers." IGCSE Aid, n.d.,
https://igcseaid.com/notes/economics-0455/3-3-workers/.

• Slidesgo. "Happy US National Labor Day." Slidesgo, 2021,

https://slidesgo.com/theme/happy-us-national-labor-day#search-la
bour+day&position-3&results-8&rs=search
.

• FreePik. "FreePik - Millions of Free Graphic Resources." FreePik, n.d.,

https://www.freepik.com/?_gl=1*y5xlmh*test_ga
*MTc0NDQ2NjAwMy4xNjc4NTA1MTQ4*test_ga_YGQZ022KPJ*MTY3ODUwNTE0OC4x
LjEuMTY3ODUwNTQ2NC42LjAuMA..*
fp_ga
*MTc0NDQ2NjAwMy4xNjc4NTA1MTQ4*fp_ga_TKX201X3BN*MTY3ODUwNTE0OC4xL
jEuMTY3ODUwNTQ2NC42LjAuMA
..