a) Distinguish between ‘Nominal wages’ and ‘Real wages’ (4mks)

 The purpose of nominal wage is simply to provide an individual with an expected dollar amount
they will receive for their work within a given time frame from an employer. In contrast, the
purpose of real wage is to help individuals determine how a dollar amount’s value changes in
response to changing inflation rates.

(b) Mt. Kenya university is a profound leader in education sector under the
banner ‘unlocking infinite possibilities’ since the university is supplying top class
graduates in the labour, the employers are persuing the graduates to solutions
to their labour related problems. In pursuance of efficient labour, company XYZ
has invited you to do a presentation to her senior managers on what they must
do to determine and promote labour efficiency in the company. In your
preparation for the presentation what are some of the factors that you would
priotize as very key in determining and promoting labour efficiency in this
company.

 Income and Standard of Living:

The income of a worker is an important determination of his efficiency and the standard of living is
determined by one’s income. If a person’s income is not sufficient for getting food, clothing, shelter and
some entertainment, his productive capacity is bound to suffer

 Working Conditions:

The efficiency of a labourer depends on the environment in which he works. A dark, cold and cheerless
workplace is unlikely to encourage industrious and carefree effort. By contrast, well-ventilated, clean
and pleasant working place, absence of unusually long hours of work, satisfactory employer-employee
relations all go a long way towards increasing the productivity of a worker

 General and Technical Education:

The efficiency of a labourer depends on his level of education. General education broadens a labourer’s
angle of vision and makes him more intelligent. But, in order to acquire technical skill one must get the
right type of technical education.
  Efficiency of Other Factors:

The efficiency of a labourer will increase if the other factors of production are of good quality.

 Motivation and Incentives:

Efficiency of labour can be increased if the worker has prospects of promotion, honour and reward. The
desire to work better and improve oneself must be stimulated by providing sufficient incentives to work.

 Energy and personal attitudes

The combination of energy and a person’s attitude will play a significant role in determining their
productivity in any context, whether work-related or not

 Objectives

The planning and setting of objectives, sufficiently endowed with resources and done in a participative
way, will boost labor productivity provided they are consistent

 Leadership

Evidently, the team leader will be involved in setting and monitoring objectives, and his or her
personality and style will influence productivity. A leader that can be trusted and who is honest and
balanced in their supervision can be the perfect driver for increasing productivity in any department

 Equipment and resources

Having insufficient resources to carry out a task is without a doubt one of the most likely preconditions
for undermining productivity.

C) The government of Kenya is putting every effort to reduce the level of

unemployment in the country. Explain why the government may not rely upon
market forces to meet this goal. (6mks)
  Unemployment Doesn’t Account for Discouraged Workers.Discouraged workers aren’t included
in the official unemployment rate.
 Unemployment Ignores Other Marginally Attached Workers. A discouraged worker is an
example of a marginally attached worker. Other marginally attached workers aren’t in the labor
force because they haven’t looked for work in the past month for various reasons (even though
they have looked for a job in the past year).
 Unemployment Doesn’t Consider Whether People Have Low-Paying Jobs. Many people who
can’t find jobs that match their skill level are forced to take jobs with low wages. These
underemployed people make up a large part of the workforce.
 Unemployment Doesn’t Capture the Long-Term Unemployment Rate. Anyone who hasn’t been
working for at least 27 weeks is considered to be long-term unemployed.

2. (a) EXPLAIN the characteristics that the labour market world over
exhibits.

1. A labour market might be have a distinct geographical location. However, defining the borders
of labour markets is difficult. For some employees, the labour market is national (or perhaps
worldwide), whereas, for others, mobility is severely limited.

2. The size of a market is determined in part by the worker’s talent and education. Engineers and
physicians with advanced degrees are likely to find acceptable employment in a variety of
locations. Workers in this situation are more inclined to seek a higher-paying position.

3. Labourers without specialised skills, such as clerks and unskilled workers, find it challenging to
get work in a variety of fields. Their labour marketplaces are likely to be limited to their
immediate surroundings. In terms of labour mobility, age is also a significant influence. Young
employees, on average, are more mobile than their elder colleagues in the workforce.

4. The most important feature of a rising economy’s labour market is that the great majority of
people work as workers, with just a tiny percentage working as employers or as employed
managers of employing units. Because the great majority of the population is employed, they
are concerned with short-term salary levels, working hours, and working conditions.
 5. Highly trained professionals like engineers and doctors are likely to find suitable employment in
many different localities. Such workers are likely to move to another job which pays better.

6. The labour market for some workers is national in scope (even international) while mobility of
some workers is highly restricted. The extent of a market depends in part upon the worker’s
education and skill.

7. The labour market is characterised by stability and lack of fluidity and diversity of rates for
similar jobs. A rise in the price of labour offered by a particular employer does not cause
employees of other firms receiving fewer wages to leave their jobs and go to high wage
employer.

8. Age is also an important factor in the mobility of labour. In general, young workers tend to be
more mobile than their older counterparts in the labour force.

C) Factory XYZ has a fixed stock of capital (tools and machines) and a variable supply of labour. As the
Human Resource Officer increases the number of workers, He realizes that the total output of the firm
grows but at an ever-decreasing rate. The Human Resource Officer has sought your help to explain why
this is happening. What would be the reason? (2mks)

 The law of diminishing marginal returns states that when an advantage is gained in a factor of
production, the marginal productivity will typically diminish as production increases. This means
that the cost advantage usually diminishes for each additional unit of output produced.