Chapter 18 – workers

Factors that influence choice of occupation

Wage factors:
1) Wages – The higher the wage rates the more the person wants to do the job

Time rate system – they get paid according to the number of hours. They can estimate the
labour costs and the workers can bargain collectively about the rate. However, it does not
reward hard work it pays lazy and industrious workers the same

Piece rate system – pays workers on the basis of the output they produce. Can only be used
if the workers output is easily measurable and products are standardised. Less supervision
required and the workers may only focus on quantity compromising quality

2) Overtime pay – paid to workers in excess of the standard hours, usually paid at a higher
rate. Workers can increase their pay and may be attracted to jobs with overtime pay. Firms
can now respond to higher demand without hiring new people. It is easier, less costly to
reduce overtime than to sack employees if demand declines. Furthermore, workers may get
tired and become less productive. Some workers pace themselves accordingly due to extra
workers and put less effort into each hour

3) Bonuses – a bonus is an extra payment. It is awarded to employees with above standard

performance they are awarded a bonus in addition to the salary. Provide workers an
incentive to work harder.

4) Commission – often paid to salespeople, they receive a percentage of the sales made by
them and this is in addition to the wage they make.

Non-wage factors:
Job satisfaction
Type of work (people rather do non manual work than manual)
Working conditions (workers like pleasant workplaces)
Working hours
Holidays
Pensions
Fringe benefits (extra benefits provided like housing, healthcare, subsidised meals)
Job security
Career prospects (room to grow)
Size of the firms (people are attracted to large firms rather than small firms)
Location (workers like workplaces close to their room)

Limiting factors:
People’s choice of occupation is limited by qualifications, skills they possess, experience they
have and the play where they live. More occupationally and geographically mobile the wider
the job opportunities are. Workers have to decide what is more important to them higher
pay or better working conditions. There will always be opportunity cost as they are giving up
on all the other job opportunities and choosing one.
Wage determination and the reasons for differences in earnings
1) Demand and supply
Higher the demand and lower the supply, the wages are going to be higher

For example, doctors there are only a few people with qualifications and the willingness and
ability to go through long years of training. Hence wages are higher. supply of cleaners will
be more than the demand for it. As for cleaners there are no qualifications, or any training
period, or any skills needed. So, wages will be lower.

Unskilled is usually paid lesser than skilled

2) Bargaining power of employers and workers

Wages are likely to be higher where the bargaining power is more, this is likely when the
workers are part of trade unions or professional organisations which can bargain collectively.

Doctors and lawyers belong to a professional organisation which represents their interests,
and their bargaining is strengthened by the fact that they would be difficult to replace.
Whereas cleaners do not belong to any organisation. Their bargaining power is reduced by
the fact they are not members of any unions and are widely dispersed, furthermore they can
be easily replaced.

Public sector workers are more usually in a union than private because government may be
more willing to negotiate. They are more affected by market policies (NMW)

3) Government policies
Specific government policies influence specific occupations – like if government mandates a
driving test to be done every 10 years, demand for instructors increases, wages increase

Most popular policy was NMW which is a minimum rate of wage for an hour, fixed by the
government for the whole economy making it illegal to pay below that. They aim to reduce
poverty and raise the pay of low paid workers. To have any impact NMW must be set above
equilibrium, some think it may cause unemployment.

Higher wage to the workers can provide motivation and hence increase their productivity.
These increased wages can cause a higher demand for products which will lead to higher
demand for workers, removing unemployment.

4) Public opinion
This tends to consider jobs with higher training period or more qualifications should be
rewarded higher.

Public opinion can influence wage rate through the claims made by workers. For example,
firefighters tend to regard themselves of equal to the police and if the police get a wage rise
even, they will demand it. Public opinion can put pressure on government to increase wages
of public sector workers.
5) Discrimination
This occurs when a group of workers are treated unfavourably in terms of employment,
wage rate, training received and for promotional opportunities. Lower demand for them due
to discrimination will lead to lower pay.

Why earning of occupation change over time

Change in the demand of labour
Causes of increase in demand of labour:
- Increased demand for the product. Demand for labour is a derived demand higher demand
for product the more the demand for labour
- Rise in productivity of labour. This increases the return from hiring workers
- Rise in price of capital so have to shift from capital to labour intensive

Changes in the supply of labour

Cause of decrease in supply:
- A fall in the labour force, if total workers fall it would be harder to recruit and find someone
- Rise in the qualification or the length of training period needed for the jobs
- Reduction in non-wage benefits of a job
- Rise in the wage or non-wage benefits of another job

Changes in the stages of production

People in the primary sector are usually less well paid than the workers in the secondary pr
tertiary. This is because primary sector workers tend to require less skill and less
qualifications. And as an economy grows demand for primary sector workers declines as
they shift from primary to secondary and then gradually tertiary.

Changes in bargaining power

A change in union’s bargaining power or willingness to take industrial action can affect
wages. If government removes a ban on forming unions, then the wages are expected to
rise. More willingness of workers to threaten industrial action can increase wages

Changes in government policy

Government can change wage rates by:
- Raising NMW will increase the wages of low paid workers
- Improved education can rise wages as it may increase demand more than supply this is
because employing more educated workers can reduce COP
- Making it easier for foreign people to live and work here may increase supply which may
hold down wage rises
- Government can enforce anti-discrimination laws which may increase wages
- Advances in technology can alter wage rates, it may decrease demand, or it may increase
demand.

Changes in earning of individuals’ overtime

The more experienced and the more you have worked, this is expected to increase your
wages. Because longer the people work the more skilled and qualified, they become.
The extent to which earning change
Magnitude of the change in wage rate also depends on the elasticity of demand for labour
(measure of responsiveness of demand for labour to a change in the wage rate) and the
elasticity of supply of labour (measure of responsiveness of the supply of labour to a change
in wage rate)

Determinants of elasticity of demand for labour:

Proportion of labour costs in total costs – if they take up large proportion then change in
wages would have a significant impact on costs hence demand would be elastic

Ease with which labour can be substitute with capital – if it is easy to substitute then
demand would be elastic

Elasticity of demand of the product produced – rise in wages increases costs this will
increase selling price and if the demand were elastic this would decrease demand. If
demand for product is elastic, then labour too will be elastic

Time period – demand for labour is more elastic in the long run as there is more time for
firms to change its method of production

Determinants of elasticity of supply of labour:

The qualifications and skills required – higher qualifications and skills required makes the
supply inelastic. This is especially true in the short run as it will take years to gain the
qualifications and the experience

Length of training period – long period of training may put off some people this makes the
supply inelastic.

Level of employment – if most workers are already employed, supply of labour is likely to be
inelastic. May have to raise wages to attract already employed workers.

Mobility of labour – higher mobility makes supply elastic. More mobile means easier for
employers to employ people as easier to switch jobs

The degree of vocation – the stronger the attachment of workers to their jobs, more inelastic
the supply tends to be in case of a decrease in wage (might still stay with a decrease in
wage)

The time period – supply of labour tends to be more elastic over time. This is because it
gives workers more time to notice wage changes and gain the necessary qualifications for
the job

Specialisation and division of labour

Specialisation – the concentration on particular products or tasks (instead of producing a
wide range of products they might specialise in making one product)
Division of labour – workers specialising in particular tasks (instead of producing the whole
good or service, a worker carries out one particular task helping in producing the good)
Workers can specialise on the task they are the best at and by doing this task so much they
automatically become better. This should mean that output per worker increases.
Concentrating on a particular task may save some time and reducing training period as they
can only focus on learning their bit.

Workers may get bored of doing the same task everyday this may mean decrease in
productivity and workers not taking care of their work. Having specialised staff may make it
difficult for staff to cover up on another employee’s work if they are on leave.

Workers who are specialised may be very skilled and in high demand which might increase
their wages. Specialisation can enable workers to pursue their specific interests. Demand for
their services can fall especially if they have only been trained for one particular task, may
be difficult to find a new job. May not make use of worker’s full talents.

Division of labour depends on how it affects the cost of production and the quality of
production and quality of products produced. If cost of production is lowered and higher
quality the economy may be able to produce and export more goods