3.3 Workers Why people work: «To earn an income: Firms pay wages to workers to supply their labour tg produce goods and services. / « Social need: Working provides the opportunity to meet new people and make new friends, and it teaches new skills and ideas. . Both financial rewards and non-financial ones, therefore motivate People to supply their labour and be productive in work. Payments for labour: Wages are time-based, pa hourly, daily or weekly, so are a li produced or sold A percentage of the value of products or services sold i paid during the year, usually dh dep: An additional Lump sum of money | Additional payment to workers, | | based on the amount of profits i made by a firm Workers receive shares in the firm to give them an incentive to work | The total or gross earnings of an employee each week or month may therefore v 5 sain, be made up of many different payments, including a basic wage ot salar) ime payments, commission and a performance-related bonus.Non-wage factors include: + hours of work + holiday entitlement + flexible working arrangements + quality of working environment + how secure the job is + how satisfying the work is «fringe benefits 55 + training opportunities + pension entitlement + opportunities for promotion + interesting and varies tasks + distance or time it takes to travel to and from work Net advantages are all the wage and non-wage factors that affect the attractiveness of a particular job or occupation. Wage determination Wages are determined by the interaction of the demand for labour and the supply of labour. What is the labour market? Labour market is a market for every type of occupation just as there are markets for all other goods and services. Firms will demand labour with the right skills to do the jobs available and people willing and able to do those jobs will supply their labour, Markets for labour can also be local, national or even international if people are willing and able to migrate overseas to work. The demand for labour In general, therefore, the higher the ‘wage rate in a particular labour market the more expensive it is to employ workers and the fewer will tend to be demanded.56 The supply of labour However, the supply of labour to a particular occupation will depend on how many people are willing and able to do the jobs on offer. a) Hours meted per week The market wage for a job The market price of labour, or equil However, while the positive relationship between labour supply and wages holds in general, it may not always be the case that ay individual will be willing to work more and more hours as the wage rate rises. At some point individuals might decide they earn enough and would like to take more lesuire time. rium wage rate, for an occupation will be determined where the demand for labour is matched by a supply of labour. wages Shou @ Quantity of SPP weeconomesontinecoik “Labo37 Why firms may change their demand for labour * Changes in consumer demand for goods and services {eonsumer demand rises, firms may expand output in response, To do so they tend to increase their demand for labour. * Changes in the productivity of labour Ilabour becomes more productive and inereases the value of output it can produce over and above the cost of wages, then firms may demand more labour. New technologies and working methods, and training programmes, can help increase the productivity of labour. * Changes in the price and productivity of capital If'machinery and equipment becomes cheaper or more productive than labour then a firm may replace labour with more capital-intensive production methods. © Changes in non-wage employment costs ‘Wages are not the only cost to an organization of employing people. If for example employee taxes and insurance are increased by the government then the demand for Jabour may fall. Why labour supply may change The supply of labour at any given wage rate may change due to a number of factors. oF cs > Changes in the advantages and disadvantages of i “ different jobs will therefore affect the supply of labour to those occupations. KGa aba a Quant of teachers © Changes in the net advantages of an occupation * Changes in the provision and quality of education and training : Changes in the level and type of education and training courses offered can increase the supply of workers with different skills. * Demographic changes + Changes in the size and age distribution of the population in an economy will also cause changes in the supply of labour to different occupations,58 For example’ ard migration to many developed economies has helped boost a i supply of labour to many occupations. The increasing average age oftheir populations in developed counyig ecause birth rates are low means that more people are leaving 1h. labour market due to old age. Why do the earnings of employees differ? Differences in wages between different occupations and employees in the same occupations are called wage differentials. 1- Different abil and qualifications Workers do not all have the same education, training and ability. People with skills that are in very short supply relative to the demand for those skills will tend to command very high market wages. 2- ‘Dirty’ jobs and-unsociable hours Some jobs are dirty or dangerous and so workers must be paid more in order to attract a supply of labour. Some people have to work nights or other unsociable hours and may be paid more to compensate for this. These are called compensating differentials. 3- Job satisfaction Ihe satisfaction provided by undertaking a job can compensate for relatively low wages for some people. + Lack of information about jobs and wages Lack of information about job availability can restrict the supply of labour to those jobs and can therefore help explain some differences ir sane iffere Sills a ee some di ve nt jobs in different areas pl ¢ differences in earnings between diffe59 $- Labour immobility High labour mobility or willingness to move can help to inerease the supply of labour to different occupations in different areas and reduce regional differences in unemployment and wage rates in a country. 6- Fringe benefits Some jobs may offer lower wages than others because they offer more perks instead, such as company cars, free life insurance or cheap travel. Why do earnings differ between people doing the same job? People in different occupations can earn different amounts of money, but even people in the same jobs can earn very different amounts. This can happen for the following reasons. 1- Regional differences in labour demand and supply conditions Firms in areas that need particular types of skills, these workers may offer higher wages to attract workers from rival firms or from elsewhere in the country. 2- Length of service Many firms have'pay scales that offer pay increases linked to the number of years a worker stays with the firm. This extra pay is both a bonus for loyalty and also a payment for having more experience and skill, Firms reward their more experienced and productive workers with higher pay because they to keep them. 3- Local pay agreements Some national trade unions may agree a national wage rate for all their members through collective bargaining with employers. All workers belonging to the union with similar work experience and levels of skill will therefore receive the same wage wherever they work in a country. 4 Non-monetary rewards er Some firms may offer their workers more fringe and other benefits than rival firms, such as longer holidays, free medical care and enhaitced pension contributions, instead of higher rates of pay.5- Discrimination Workers doing the same job may be treated differently by different employers simply because of their sex, age, race or religion. Investigating wage differentials Economists, social researchers, trade unions, employers’ groups and governments often monitor the following key earnings differentials: 1- Public-private sector pay gap ‘The public sector therefore competes with private sector firms to attract many of the same types of workers with the same skills and so governments need to be aware ‘what private sector firms are paying. However, lower publie sector pay might be explained by many of its employees having more secure jobs and, in some cases, better pensions. 2- Skilled and unskilled workers ‘Wage inequality has been increasing between skilled and unskilled workers in many developed and developing economies. 3- Industrial wage differentials Expanding industries will tend to offer higher wages to attract workers with the skills they need, especially ifthe supply of labour with these skills is relatively low. In Contrast, the demand for labour in old, declining industries will be falling. 4- Gender pay gap ‘The average eamings of men usually exceed those ‘of women the world over. Much of the difference in carnings can be explained by the following factors. * More womer ine an end t0 work in occupations such as teaching, nursing and retailing than men, Market wa; ige rates for these occupations are often below 0 Wee fF many other occupations ; less Wark eqpeng treet breaks to raise children, and therefore may build up ea ce than males and have less career progression. ven work part-time than full-time compared to men,61 Government policy: the minimum wage Wage determination is also influenced by government policy in the form of national minimum wage (NMW) legislation. This is the lowest amount a firm can pay its workers as set by the government. Any firm which pays workers less than the legal minimum wage is breaking the law. Workers receive a fair wage for an hour’s work and are not exploited by employers. Unemployed people may have an incentive to work as the wage rate may be more attractive than relying on welfare payments. Low income earners may have more money to spend and this may increase consumption in the economy. t Di minarets Workers who earn more than the minimum wage may request a higher wage rate to maintain the wage differential between them and workers who carn less than they do. Unemployment in the economy may increase because firms face higher wage bills and reduce their _ demand for labour. on of labour and specialization of labour Specialisation of labour occurs when a worker becomes an expert in a particular Profession. Division of labour occurs when a production process or task is split between different workers, who become experts in a part of the process. Advantages of division of labour and Disadvantages of division of labour specialisation of labour and specialisation of labour % Workers become experts in their field, so their productivity and efficiency increase. + The quality of the product or service increases. > Increase competitiveness for firms. The work may become repetitive and boring. %& The production process may become overspecialised — that is, too dependent on an individual worker or group of workers. & There is a lack of flexibility.