Workers
Wage and non-wage factors
What are the wage factors that affect occupation?
- Wages as workers aim to earn higher wages
- Overtime pay because the opportunity to earn overtime pay will attract workers
- Bonus extra pay received by workers for achieving higher results creates an incentive for workers to work harder, especially for time-rate jobs.
- Commission as with a higher commission workers have greater incentive to choose an occupation.
What are the non-wage factors that affect occupation?
- Job satisfaction
- Type of work – manual vs non-manual. Dangerous work gets high pay
- Working conditions
- Working hours
- Holidays
- Pensions
- Fringe benefits
- Job security
- Career prospects
- Size of firm
- Location
- Limiting factors
Wage determination
- Demand and supply
In a free market, wages are determined based on the demand and supply of workers, much like the allocation of resources.
The higher the demand for workers and the lower the supply of workers, the higher the wages are likely to be.
| Determinants of Demand | Determinants of Supply |
| Increased demand for the product (derived demand) A rise in labor productivity Increased capital price | A fall in the labor force Skills and qualification required Length of training period Decrease in non-wage benefits Increase in non-wage benefits of other jobs. |
- Relative bargaining powers of employers and workers
Wages are likely to be higher in occupations where workers have higher bargaining power relative to employers.
Factors affecting bargaining power include:
- Ability to replace labor with capital or other workers
- The presence of trade unions.
- Elasticity of Demand and Supply
3. Government policies
Government policies can influence workers’ wages.
Governments can directly affect the wages of the workers working in the public sector.
The government can also set national minimum wages(NMW) for certain occupations.
4. Public opinion
Jobs that involve long periods of training and study are highly rewarded.
Wage claims made by workers. Firemen compare themselves to policemen.
Public opinion can put pressure on the government in different ways. E.g. Nurses should be rewarded more in these times of pandemic.
Social attitudes. E.g. social attitudes against working women lead to women receiving less pay than women.
5. Discrimination
Due to discrimination, a certain group of workers is treated unfavorably in terms of employment, wage rate, training received, or promotional opportunities. Negative social attitudes towards these groups lead to a lack of demand for these workers and therefore a lower wage and other nonwage benefits.
Changes in earnings
Changes in earnings of occupations over time
- Changes in stages of production
- Changes in bargaining power
- Changes in public opinion
- Changes in earnings of individuals over time
- As people get older their earnings increase because they become more skilled and productive. They are more productive because they have more experience. Being skilled increases the chances of receiving a promotion and a higher wage.
- Earnings may also fall with time as older workers give up on overtime pay and some may switch to less demanding jobs.
Government policies may also affect earnings.
- The government may make it easier for foreign workers to live and work in the country, increasing the supply of labor, hence causing downward pressure on the price
- Anti-discrimination policies may also increase the career prospects and wages of disadvantaged groups.
- Advances in technology could lead to a decrease in demand for labor and hence a downward pressure on wage rates.
The elasticity of demand and supply of labor
| Determinants of elasticity of demand | Determinants of elasticity of supply |
| The proportion of labor costs in total costs– if the proportion of labor costs is high the demand will be elastic. The ease with which labor can be substituted by capital– if capital can easily replace labor demand will be elastic. Elasticity of demand of the product produced– if the demand for the product is elastic the demand for labour will also be elastic. | The qualifications and skills required– the more qualifications and skills required, the more inelastic the supply will be, especially in the short run The length of training period– the longer the training period the more inelastic the supply becomes. The level of employment- If most workers are employed then the elasticity of supply is more inelastic. The mobility of labour– the more easily workers find it to change jobs, or change location the more easy it is for employers to recruit labor and hence making supply elastic. The degree of vocation– The stronger the attachment of workers to their jobs, the more inelastic supply tends to be. Time period– Supply tends to become more elastic over time |
Specialization
Specialization is the concentration on particular products or tasks.
Division of labor takes place when workers specialize.
The key advantage of the specialization of workers is the lower unit cost.
| Benefits | Drawbacks |
| Per unit cost is reduced- When workers specialize on specific tasks they become more productive and hence the per unit cost is reduced. Concentrating on particular tasks can enable workers to pursue their specific interests- workers will be able to focus on tasks that they take an interest in and can specialize in these tasks. Specialising in less demanding jobs can reduce pressure on workers– workers are enabled to focus on simpler tasks helping them concentrate and perform their jobs more easily. | Workers become occupationally immobile- as if workers only focus on one task then they may find it difficult to find another job if the need arises. Workers may become tired of the same task – focusing on only one task may mean workers get bored which could lead to unproductive use of a worker,s skills. Specialization may not make full use of workers’ talents- Focusing only on one task may lead to underutilization of a worker,s full potential |
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