The Labour Market: Wage Determination - Unit 3 (AQA)

HideShow resource information
  • Created by: Tom
  • Created on: 22-01-13 19:28
Preview of The Labour Market: Wage Determination - Unit 3 (AQA)

First 224 words of the document:

Economics ­ The Labour Market: Wage Determination (11.12.12)
The Labour Market: Wage Determination
Pay in a particular labour market is influenced by a number of factors.
Along with supply & demand, these include the influence of trade unions and professional
organisations, government intervention and esteem.
Demand & Supply:
The forces of demand & supply play a key role in determining relative wage rates
Wages paid to a particular occupation will rise following a rise in demand for their
Wages paid to a particular occupations will decrease following a decrease in demand
for their services
An Increase in demand for
website designers = rightward
shift of the demand curve (MRP)
Leads to a subsequent rise in
wages W ­ W1
Economic Rent & Transfer Earnings:
Demand for, and supply of, labour are also important determinants of economic rent and
transfer earnings
Transfer Earnings = what a factor of production can earn in its next best alternative use
(opportunity cost of a factor performing its current role) ­ In labour market, this is
equivalent to the minimum which has to be paid to keep a worker in his or her current job
Economic Rent = Surplus payment made over and above transfer earnings (total earnings
­ transfer earnings)

Other pages in this set

Page 2

Preview of page 2

Here's a taster:

The amount of economic rent earned by individual workers will differ:
The first worker taken on would have been prepared to work for much less than the
wage rate actually paid (a high proportion of his/her earnings would be economic
The last worker employed would have been prepared to work for only the going
wage rate (none of his/her earnings would be economic rent)
The proportion if earnings made up of economic rent depends on the elasticity of supply:
Economic rent will be a…read more

Page 3

Preview of page 3

Here's a taster:

This effectively creates a new supply curve ­ no workers will be willing to work for any
wage less than WM
Employment will fall from EC to EM though ­ Some workers will be able to benefit from the
higher wages, others may lose their jobs (Excess supply of ABC)
The wage increase secured by Trade Unions = "Trade union mark up"
Union Membership Trends & Reasons:
Major Decline ­ 2008 = 28% of people working in UK were in a union
Unions have less…read more

Page 4

Preview of page 4

Here's a taster:

Higher pay = Incentive to work more hours
Increased incomes = spend more on consumer goods & services = Stimulate AD in
economy = Economic Growth = Demand for labour increases
Can work with management & employers to improve efficiency and competitiveness
May prevent the introduction of new technology which would increase productivity
Reduce profits & employment more than if the labour market was fully competitive
Act as a distortion of the workings of the labour market
Their collective bargaining = higher wages = cost-push…read more

Page 5

Preview of page 5

Here's a taster:

In the diagram Eq workers are taken on, but the monopsonist can employ these workers at
an average wage rate of Wq; a pay level below the MRP of Labour
The monopolist is `exploiting' labour by not paying them the full value of their MRP which is
essentially what the labour is `worth'
As the monopsonist will face increasing wage rates as it increases employment, it will this
prefer to restrict employment, depressing wages below the free market level
The wage rate is lower and…read more

Page 6

Preview of page 6

Here's a taster:

NMW increases the pay rate
Reduces the number of people
Leads to an XS supply of labour
Evaluation of NMW:
Increases Unemployment = Government Failure
Boost staff productivity as they are more motivated
Force some employers to become too uncompetitive = closure of companies
Wage Differentials between particular groups:
Skilled & Unskilled workers:
Skilled works = receive higher wages (demand is higher and fewer are in supply)
Skilled workers have higher MRP ­ their skills generate high output per worker; also
more difficult to…read more

Page 7

Preview of page 7

Here's a taster:

Part-time & full-time workers:
Part-time workers tend to receive lower hourly rates than full-time workers
The supply of people willing and able to work part time is relatively high in
comparison to demand
Part-time workers are also less likely to receive training than full time workers =
lower productivity
Smaller proportions of part-time workers are members of trade unions
Ethnic Origin:
Workers from ethnic minorities = receive lower wages than white people (on
A high proportion of work they do is in the catering…read more

Page 8

Preview of page 8

Here's a taster:

The costs of negative discrimination:
Will lead to lower pay for the groups who experience the negative discrimination
Such groups will find it harder to find work, or may result to taking less demanding
jobs than they are qualified to do
May also not be considered for promotions
Firms themselves will have less workers to chose from if they discriminate; will
increase their production costs & damage their international competitiveness ­
Higher costs are likely to be passed onto consumers
Potential economy wide effects as…read more



This is a well written summary of how wages are determined. It can be adapted for more interactive learners or used as notes for reading.

Similar Economics resources:

See all Economics resources »See all resources »