Chapter 18

Unit-3.3-Workers
Grade: 08-C
Tomy PC
 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 diff erences in earnings
■ discuss the advantages and disadvantages of division
of labour/specialisation for workers, firms and the
 Key Terms of the chapter

Earnings:
The total pay a person receives is known
as his earnings.
 Key Terms of the chapter

Wage rate:
A payment which an employer contracts
to pay a worker. It is the basic wage a
worker receives per unit of time or unit of
output.
 Key Terms of the chapter

Basic Pay
The amount of money that will be
received by an employee before any
additional payment or any deduction are
made.
 Key Terms of the chapter

Wage:
A form of payment that is usually
expressed in terms of per hour, per day or
per week
 Key Terms of the chapter

Salary:
A form of payment that is usually
expressed in terms of a figure for a whole
month or year.
 Key Terms of the chapter

Overtime:
Additional hours worked above the basic
contracted number of hours, usually paid
at a higher rate
 Key Terms of the chapter

Bonus:
An extra amount of money paid to an
employee, usually for meeting a
particular target(especially during
festival season).
 Key Terms of the chapter

Commission:
A payment made in proportion to the
achievement of target, e.g. a commission
of 10% on all sales made by a person
 Key Terms of the chapter

Derived Demand:
In economics, derived demand is demand
for a factor of production or
intermediate good that occurs as a result
of the demand for another intermediate
or final good.
 Key Terms of the chapter

Minimum Wage:
A wage established by a government
above the market wage and below which
no worker can legally be paid.
 Key Terms of the chapter

Primary Sector:
The sector in which workers are
employed in extraction of free natural
resources, such as farming, mining,
fishing ect..
 Key Terms of the chapter

Secondary Sector:
The sector in which workers are
employed in the second stage of
production process, such as different
manufacturing works
 Key Terms of the chapter

Tertiary Sector:
The sector in which workers are
employed in third stage of the production
process. They provide services to primary
and secondary sector
 Key Terms of the chapter

Equal pay legislation:

Laws that have been passed in favour of
equal pay for equal work of equal value
 Key Terms of the chapter

Gender Wage Gap:

The difference in average wage earnings
of male and female workers in an
economy.
 Key Terms of the chapter

Discrimination:
A situation where one group of workers is
treated less favourably that others.
 Key Terms of the chapter

Public sector premium:

The difference in earnings between the
private sector and public sector, with
public sector workers earning, on
average, more than private sector
workers.
 Key Terms of the chapter

Specialisation:
The process whereby individuals, firms
and economies concentrate on producing
those products in which they have an
advantage.
 Key Terms of the chapter

Division of Labour:
A situation where workers specialize in
specific task in the production process is
called division of labour
 Key Terms of the chapter

Productivity:
The output per factor of production per
period of time.
 Factors that influence an
individual’s
choice of occupation
There is a wide range of factors that may
influence a person’s choice of jobs. These can be
divided into wage factors (also called monetary or
pecuniary factors), non-wage factors (also referred
to as non-monetary or non-pecuniary factors) and
limiting factors.
 1. Wage Factors

An important influence on what jobs a person

decides to do, is the pay on offer. The total pay a
person receives is known as his earnings. In addition
to the basic wage, earnings may also include
overtime pay, bonuses and commission.
 Activity-1
Chinese airlines are among the fastest growing, carrying more
and more passengers. The country’s airline industry is expanding more
rapidly than the rate at which pilots can be trained. As a result, it is seeking
to recruit foreign pilots. In 2016, some Chinese airlines were offering
pilots from other countries wages of $320 000 a year. This was four times
the average wage of Brazilian pilots and approximately one and half times
the average wage of US pilots.
a How much were pilots paid, on average, in Brazil in 2016?
b Explain what would be expected to happen to pilots’ pay in
Brazil.
 2. Non-Wage Factors

People do not always choose the highest paid

job on offer. They take into account a range of other
factors including job satisfaction, type of work,
working conditions, working hours, holidays,
pensions, fringe benefits, job security, career
prospects, size of firm and location.
 2. Non-Wage Factors
-Job Satisfaction
Job satisfaction refers to the
enjoyment and pleasure that a person
gains from working in a particular
occupation.
 2. Non-Wage Factors
-Career prospects-
Some people may wish to work
in occupations where there are good
opportunities for promotion and the
enhancement of a career.
2. Non-Wage Factors
 2. Non-Wage Factors
-Length of Holidays-
● Some occupations may be more attractive
than others because they offer longer than average
holidays. Teaching is one occupation, well known
for the length of holidays on offer. In fact, one
reason for people preferring to go for teaching is
the benefit of long holidays.
 2. Non-Wage Factors
-Pension Scheme-
The pension scheme provided is different for
different occupations, especially in the amounts
contributed by the employer versus the amount
contributed by the employee.
 2. Non-Wage Factors
-Job Security-
Some occupations may be regarded as more
secure in terms of continued job prospects over a long
period of time.
 2. Non-Wage Factors
-Location-
One factor affecting an individual’s choice of
occupation could be the location of a job, e.g. a job
near that is relatively close to friend and family
 2. Non-Wage Factors
-Working condition-
Working conditions are an important
determining factor. People like to work in
pleasant surroundings, with friendly
colleagues and enjoying regular breaks.
 Class-Activity-2
In 2016, in the UK five of the most popular occupations for new graduates
were in accountancy, the civil service, investment banking, public sector healthcare
(the National Health Service NHS) and public sector broadcasting (BBC). Some of
those who applied for jobs with the NHS were attracted by what they considered to be
good career opportunities provided by the country’s largest employer.

a How many of the five occupations mentioned are in the public sector in the
UK?
b Apart from good career opportunities, explain two possible reasons for a

graduate to opt for a job in public sector healthcare. .

 Occupational choice and
opportunity cost
Choosing to take up one occupation involves rejecting
other occupations. Workers have to decide what is important
to them. A worker may be prepared to give up a well-paid job,
or the opportunity to undertake such as job, in favour of a less
well-paid job that offers more job satisfaction. For example, a
merchant banker may resign to take up a job as a teacher.
 Class-Activity-3
a Identify three reasons why a person
may want to be a pilot.
b Explain three reasons why a person,
despite wanting to be a pilot, may not
succeed in becoming a pilot.
Wage determination and the reasons
for differences in earning

The key factors that determine the amount of pay

received by workers and why some workers earn more
than others are the demand for and supply of their
labour. Other influencing factors include the relative
bargaining power of employers and workers,
government policies, public opinion and discrimination.
 1. Demand and Supply
The higher the demand for and the lower the supply of
workers in an occupation, the higher the pay is likely to be.
Figure 18.1 shows the markets for doctors and for cleaners..
 1. Demand and Supply

Unskilled workers are generally paid less than skilled

workers. Demand for skilled workers is high, whilst their supply is
low. There are two main influences on the demand for workers. One
is the amount of output they can produce and the other is the price
for which that output can be sold. Skilled workers are usually highly
productive, producing both a high quantity and a high quality of
output per hour. Also, the supply of skilled workers is usually lower
than that of unskilled workers.
 1. Demand and Supply

Supply also explains why some workers, who are involved in

dangerous jobs, are well-paid. There is a limited supply of people
who are willing to work as steeplejacks. To try to overcome this
reluctance a number of employers pay workers undertaking this job a
higher rate than that paid to other building workers.
 1. Demand and Supply

The supply of workers in the agricultural and manufacturing

sectors varies. In a number of countries, including some Asian and
African countries, there is a surplus of agricultural workers which
results in lower agricultural wages. The demand for and price of
products made by manufacturing industries tend to increase at a
more rapid rate than those made by primary sector industries. This
helps to keep the demand for manufacturing workers high, relative to
agricultural sector workers.
 1. Demand and Supply

Demand and supply of workers in the private and public

sectors vary among countries. In some countries the public sector is
expanding, whilst in others it is contracting. A number of people like
working in the public sector because of greater job security, longer
holidays and better pensions than those offered in the private sector.
 Activity-4

Under which circumstance is an occupation

likely to be well-paid?
a Demand is high/low.
b Supply is high/low.
c Workers have strong/weak bargaining
power.
d Workers are skilled/unskilled.
2. Relative bargaining power of employers
and workers
Wages are likely to be higher in occupations
where workers have strong bargaining power
relative to employers. This is more likely to be the
case if most of the workers are members of a trade
union or professional organisation which can
bargain collectively on their behalf.
 3. Government policy

Government policies affect wages in a variety of

ways. A government clearly influences the wages of those
workers whom it employs in the public sector. Its policies
also influence wages in the private sector. Those policies,
which promote economic growth, tend to push up wages
throughout the economy as they increase demand for
labour.
 4. Public Opinion

Public opinion can influence wage rates in a

number of ways. One is through the wage claims
made by the workers. Public opinion can put
pressure on a government to revise the wages it
pays to the public sector workers.
 Activity-5

Factory workers in the garment industry in Mauritius are among the lowest paid
in the country, earning less than the workers in mining, transport and
construction industries. Most work on ‘piece rates’ and are paid a productivity
bonus if they exceed their production targets. As their pay is so low, they are
heavily dependent on both bonuses and overtime. These extra payments take
their earnings above the national minimum wage.
a Define:
i piece rates
ii national minimum wage.
b Explain three possible reasons why factory workers in the garment
industry may receive lower pay than construction workers.
 Wage Discrimination
Discrimination occurs when a group of workers is treated
unfavourably in terms of employment, the wage rate, the training received
and/or promotional opportunities. For example, some employers may be
reluctant to have female workers. Even when hourly wage rates are considered,
however, women still get paid less than men. There are a number of reasons for
this:
• women tend to be less well qualified than men, but this is changing in a
number of countries, with more women now going to university than men
• they tend to be more heavily concentrated in low-paid occupations
• they are less likely to belong to trade unions and professional organisations
• they are still discriminated against.
 Activity-6
Latin America has a relatively large gender gap. In 2015 men of the same age
and level of education earned 17% more than women. In that year, female workers in Chile
earned 18% less than male workers. A smaller proportion of women are working in Chile,
as compared to any other Latin American country. To encourage more women to enter the
labour force and to generate greater wage equality, the Chilean government introduced a
new labour code for the public sector. This forbids pregnancy tests, removes the need for
mention of a candidate’s gender from job applications and requires training during normal
working hours. The government is encouraging the private sector to adopt the code as
well.
a Identify two possible reasons for a smaller proportion of working women in Chile than in
other Latin American countries.
b What evidence is there in the passage that suggests female workers are being
discriminated against in Chile?
 Reason for difference in
earning
1. Skilled and unskilled workers
2.Primary/ secondary and tertiary
workers
3.Male and female workers
4.Private sector and public sector
workers
The extent to which earnings change
The magnitude of the change in the wage rate due to
a change in demand for, or supply of, labour is influenced
not only by the size of the change, but also by the elasticity
of demand for labour and the elasticity of supply of labour.
Figure 18.7 shows demand for labour increasing by the
same amount in both cases, but the impact on the wage rate
is much greater in the first case where both the demand for
and supply of labour are inelastic.
The extent to which earnings change
The main determinants of elasticity of
demand for labour are:
1. The proportion of labour costs in total costs. If labour costs form a large proportion of
total costs, a change in wages would have a significant impact on costs and hence
demand would be elastic.
2. The ease with which labour can be substituted by capital. If it is easy to replace
workers with machines, demand would again be elastic.
3. The elasticity of demand for the product produced. A rise in wages increases costs of
production which, in turn, raises the price of the product. This causes demand for the
product to contract and demand for labour to fall. The more elastic the demand for the
product is, the greater the fall in demand for it and hence for workers, making demand
for labour elastic.
4. The time period. Demand for labour is usually more elastic in the long run as there is
more time for firms to change their methods of production.
The main determinants of elasticity of
supply for labour are:
1. The qualifications and skills required.
2. The length of training period.
3. The level of employment.
4. The mobility of labour.
5. The degree of vocation.
6. The time period.
Specialisation and division of labour
Specialisation means the concentration on particular products
or tasks. Instead of making a wide range of products, a firm may
specialise in manufacture of one or a few products. A doctor may
concentrate on treating patients with heart problems, rather than on
treatment of patients suffering from a number of illnesses.
Division of labour occurs when workers specialise. Instead of
producing the whole good or service, a worker carries out one particular
task. The key advantage claimed for specialisation of workers is lower
cost per unit produced. There are a number of reasons why this may
occur.
Advantages and disadvantages of specialization and
division of labour

The advantages of specialisation and division

of labour include increased output, less wastage,
and lower unit costs.
The disadvantages of specialisation and
division of labour include increased boredom,
overreliance, finite resources, and changing tastes.