Labour market - IGCSE-GCE O' LEVEL ECONOMICS.

How to wage rate is determined?

The wage rate in a particular industry is determined by the market forces i.e. demand and supply.

The point at which the demand and supply of labour will intersect will determine the wage rate for that particular industry.

A rise in the demand for labour will lead to a rise in the equilibrium wage rate.

A fall in the supply of labour will result in a rise in the equilibrium wage rate.

Download handout 'labour market graphs'

Why work for low Wages? 

There may be times when a worker would be prepared to work for very low wages?

The reasons might be

• The worker might not be able to get another job and has to contend with low wages till he finds a better paying job.
• Low skilled jobs usually have low wages. The worker might not be trained to do skilled job and thus get low wages.
• The worker might choose to work part-time and does not mind low pay. For example, a student working doing a part time job to earn his pocket money may not negotiate too much for higher wages.
• In the same way, a worker might view the job as a temporary measure until a better job is available and may not negotiate for better wages.
• Lack of information is also an important factor. Workers who do not know of alternative jobs usually land up getting lower wages.
• Age may be a factor which limits the worker to get higher wages.

Why workers change jobs at same wages?

There are many times when a worker decides to move to another job at the same rate of pay

The reasons might be:

• Sometimes workers move from one job to another at the same rate of pay because their working conditions are not good or acceptable to them and they prefer to change job even though they are not paid more.
• There may be times when the worker may find problems due to extreme weather conditions or geographical factors.
• Workers also change jobs in expectation of better prospects of promotion or professional development, though they are not getting higher wages.
• Many workers might find the journey to work very tiring and would prefer to work close to their homes.
• Some workers might relocate to a location which they personally like even though they might get the same wages.
• Working in large company is considered as a status symbol by many workers and they might change job to work in a large company.
• Many businesses don’t pay high wages but care for their employees by providing Fringe benefits such as subsidised meals, health scheme, leisure activities. This may also influence a worker to move to these businesses.

Why wages differ?

Reasons for differences in remuneration:

• Skills/training: Jobs requiring higher level of skills and training usually fetch higher remuneration
• Education/qualifications: Again jobs requiring higher level of education/qualification are paid higher remunerations.
• Experience: People with vast experience will get higher remuneration as compared to a person with lesser experience.
• Level of responsibility: Jobs with greater responsibilities are usually paid more.
• Geographical area: Jobs located in urban areas are usually carrying higher remunerations because of higher living costs in cities. People working in trecherous geographical areas may get extra remuneration in the form of additional allowances.
• Trade union membership: Trade Union members might end up negotiating better remunerations then non-trade union members.
• Demand factors: Firms producing goods and services which are high in demand usually pay better remunerations to their workers.
• Supply factors: Industries where there is a shortage of workers will usually pay higher remuneration to attract workers

Factors affecting individual's choice of job

An individual might be influenced by many factors while choosing a job. These factors are divided into wage factors and non wage factors.

Non-wage factors

Here are some of the non-wage factors which might influence an individual's choice.

• length/number of holidays
•  working conditions/environment
• hours of work
• promotion/career prospects
• travelling distance
• size of company
• social/canteen facilities
• provision of insurance scheme
• company car.f