CHAPTE

R 18

WORKERS
Learning objectives |
By the end of this chapter you will be able to:
• Analyse the wage and non-wage factors that influence an
individual’s choice of occupation.
• Analyse how wages are determined.
• Discuss the influences on wage determination.
• Draw demand and supply diagrams to analyse labour markets.
• Discuss the reasons for differences in earnings.
• Discuss the advantages and disadvantages of division of
labour/specialisation for workers, firms and the economy.
Introduction |
What career would you like to follow? What influences your choice? One
factor, although it is unlikely to be the only one, is the wages you might
expect. Why do you think some careers get paid more than others? Do you 2

think you would enjoy a job if it was very specialized?

18.1 Factors that influence an individual’s choice of occupation

 Time wages
 Job satisfaction
 Type of work
 Working conditions
 Commission
 Working hours
 Piece rate wages
 Holidays
 Pensions
 Bonuses
 Fringe benefits
 Job security
 Overtime pay
 Career prospectus
 Size of firms
 Location
 18.1 Factors that influence an individual’s
choice of occupation
 Wage factors
 Wages (time rate / piece rate)
 Overtime pay
 Bonuses
 Commission

 Non-wage factors
 Job satisfaction  Type of work
 Working conditions  Working hours
 Holidays  Pensions
 Fringe benefits  Job security
 Career prospectus  Size of firms
 Location 4
18.1 Factors that influence an individual’s
choice of occupation
• Limiting factors
• Qualifications
• Skills
• Experience
• Location
• Occupationally and
Geographically
mobile workers.

5
 Demand and supply
 High demand / lower demand.
 More supply / less supply.
 Cleaners?
 Unskilled or skilled? (Amount & quality)
 Dangerous jobs? Steeplejacks
 Agriculture vs Manufacturing?
 Public vs private?
18.2 Wage determination and the reasons for differences in earnings
 Public opinion
 Considers long periods of
study and training.
 Doctors / nurses /
engineers.
 League table of wage rates
 Pressure government.
 Discrimination
 Government policies  Employment, wage rate,
 Influence directly (public) and indirectly trainings, promotions.
(private).  Discriminations are
 Policies: illegal.
 Economic growth - increases demand.  Eg: Female workers
 National Minimum Wage.  Women tend get low
 Relative bargaining paid (qualification, low-
 More workers in trade union. paid occupations, trade
7

 Doctors and lawyers vs cleaners and waiters. unions, discriminated)

 Public sector workers.
18.3 Why earnings of occupations change over time

 Changes in Demand and supply  What can cause demand for labour to
 What if higher demand for increase?
labour?  Increased demand for the product.
 Wage rates, bonuses &  A rise in labour productivity.
overtime rate.  A rise in the price of capital.
Wage rate
S
 Demand for pilots are increasing in
W1 recent years. More people are
W travelling.
 Wages of agricultural workers have
D D1 been falling relative to the wages of
Q Q1 Quantity of other workers. Partly because it has
labour become easier to replace it with
capital.
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18.3 Why earnings of occupations change over time

 Changes in Demand and supply  Factors that can cause fall in supply
 What change in supply would of workers:
increase wage rates, bonuses &  A fall in the labour force.
overtime rates?  A rise in qualifications or length of
training required.
Wage rate S1  A reduction in non-wage benefits of
S a job.
 A rise in the wage or non-wage
W1
W
benefits in other jobs.

D
Q1 Q Quantity of
labour

9
18.3 Why earnings of occupations change over time
 Changes in the stages of production
 Workers in which sector of
production are paid least?
 Primary, secondary, tertiary?
 Primary sector workers are paid
less:
 Less skilled.
 Few qualifications.
 As economy develops,
primary sector declines.
 Demand for workers in the
secondary sector first increases
and then for tertiary.
 Some of the best paid are in
tertiary. Example:
 Judges
 Surgeons
 There are some high-paid workers
in primary sector (engineers in oil
industry) and low-paid in tertiary
sector (shop assistant).
 Changes in bargaining power
 Increase in power of trade unions
can increase wages.
 Changes government policies
 Raising minimum wage
 Improving education.
 Making easier for foreigners to
immigrate.
 Anti-discrimination laws.
 Advances in technology.
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18.3 Why earnings of occupations change over time
 Changes in public opinion
 Overtime, how occupations and those who
undertake them are viewed can change
 Eg: Journalists
 Pay and job opportunities for women in Saudi
Arabia.

 Changes in the earnings of individuals over time.

 Increase as they get older.
 Gets skilled.
 Become productive with experience.
 Gets trained.
 This leads better chances of promotions.
 Some workers switch their work for better pay.
 Others take more responsibility for more pay.
 When getting old, workers may give up working 11

overtime and switch to less demand work.

 As a result wage and bonus might be reduced.
18.4 The extent to which earnings change.

Earnings can also be influenced by elasticity of demand for labour and

elasticity of supply of labour.

Wage rate Wage rate

S

W1

W W1 S
W D1
D
D D1
Q Q1 Quantity of Q Q1 Quantity of
labour labour
(a) Inelastic demand and supply (b) Elastic demand and supply

 Elasticity of demand for labour: a  Elasticity of supply of labour: a

measure of responsiveness of measure of responsiveness of the
12

demand for labour to a change in supply of labour to a change in the

the wage rate. wage rate.
18.4 The extent to which earnings change.
Determinants of elasticity of demand
for labour
 The proportion of labour costs in
total costs: If labour costs form a
large proportion of total costs,
demand would be elastic.
 The ease with which labour can be
substituted by capital: If it is easy
to replace workers with machine,
demand will be elastic.
 The elasticity of demand for the
product produced: If demand for
product has elastic demand,
demand for labour will be elastic.
 The time period: Demand for
labour is usually more elastic in the
long run.
Determinants of elasticity of supply
of labour
 The qualifications and skills
required: More qualifications and
trainings required will make
inelastic supply of labour.
 The length of training period: Long
period of training will make
inelastic supply of labour.
 The level of employment: If most
workers are employed, supply will
be inelastic.
 The degree of vocation: Strong
attachment to their jobs makes
workers inelastic. 13
 The time period: Over time, supply
tends to be elastic.
18.5 Specialisation and division of labour.

Specialisation: The concentration on

particular products or tasks.
Division of labour: Workers
specialising in particular tasks.
Adavantages of division of labour to
firm.
• Specialise on the task they are best
at.
• Increased output per worker
• Workers can be trained more
quickly.
• Workers time will be saved.
• Can design machinery to help
workers.
Disdavantages of division of labour to
firm.
• May result in higher costs.
• Workers get bored.
• May make more mistakes.
• May take more days off.
• Difficult to cover up the absent
workers work.
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18.5 Specialisation and division of labour.
Adavantages of division of labour to Disdavantages of division of labour to
worker worker
• Can become very skilled. • May find it difficult to get another
• If skill is in high demand, may job.
earn higher wages. • If demand falls they may face
• Can choose jobs of their interest. structural unemployment.
Eg: E.N.T doctors, Scan doctors. • Boredom.
• The work can become very easy. • Maybe replaced by machine.

Effect of division of labour to the

economy
• If cost of production lowers and
quality increases, economy will
benefit.
• It will increase exports. 15