Chapter 18: Workers

Question 1

Factors that influence an individual’s choice of occupation

Answer 1

Wage Factors

Non-Wage Factors

Limiting Factors

Question 2

Wage factors

Answer 2

Factors relating to total pay, influencing what job a person decides to do. Examples include:

Wage/Salary

Bonuses

Commissions

Overtime pay

Question 3

Wage/Salary

Answer 3

Usually per hour or per year/paid per month

Question 4

Wage/Salary: Piece-rate

Answer 4

Paid per unit of output (rewards efficiency, incentive to be productive) (otherwise workers might cut corners with quality)

Question 5

Wage/Salary: Time-rate

Answer 5

Paid per hour worked (workers work salary)

Question 6

Bonus

Answer 6

Extra payment for workers who produce above a standard amount, finish ahead of time, secure a profitable contract, or contribute to higher
profits in some other way

Question 7

Commission

Answer 7

Involves workers receiving a proportion of the value of the sales they make.

Question 8

Overtime pay

Answer 8

Paid to the workers who work in excess of the standard working week.

Question 9

Non-wage factors

Answer 9

Factors relating to working conditions, influencing what job a person decides to do. Examples include:

Job satisfaction

Type of work

Working conditions

Working hours

Holidays

Pensions

Fringe benefits

Job security

Career prospects

Size of firm and location

Question 10

Fringe benefits

Answer 10

Extra benefits are provided to workers by their employers. Examples include:

Free subsidized food/drinks

Housing

School fees

Company car

Question 11

Pension

Answer 11

Payment made during a person’s retirement which that person or their employer has contributed during their working life.

Question 12

Limiting factors

Answer 12

Factors relating to limits, influencing what job a person decides to do. Examples include:

Physical strength

Geographical immobility

Level of education

Social capital

Age

Discrimination

Question 13

Wage determinants

Answer 13

Key factors that determine the amount of pay received by workers. Examples include:

Demand for and supply of labor

Relative bargaining power of employers and workers

Government policies

Public opinion and discrimination

Question 14

Factors affecting labor supply

Answer 14

Qualifications required

Working conditions - eg. more fringe benefits

Size of labor-force benefits

Length of time for training/qualification

Degree of risk

Wage and non-wage factors affecting how appealing other occupations are eg. If wages were increased in the construction sector, supply in the labor market per security personnel would decrease.

Question 15

Factors affecting labor demand

Answer 15

Whether labor can be easily replaced with capital -> capital and labor are substitutes

Size+profitability of the industry - demand for workers comes from the demand for the goods they produce

Trends/events eg. pandemic -> delivery drivers up, taxi down

Productivity of workers - affects what a worker is worth to the company - determines what they would be willing to pay

Question 16

Diagram

Answer 16

Generally, wages are determined by the level of supply relative to the level of demand:

• Supply high relative to demand -> lower wages
  -Demand high relative to supply -> higher wages

Question 18

Government policy: Minimum wage

Answer 18

Governments set a minimum wage above the equilibrium wage in order to provide a basic living standard and sufficient income to the lowest paid.

Causes:
Extension in supply (incentive to work increased)
Contraction in demand (firms wish to hire fewer workers)

Question 19

Discrimination

Answer 19

Social norms from history

Women take of children, as a result have less time to work

Question 20

Elasticity of demand for labor

Answer 20

The responsiveness of labor demand to a change in the wage rate.

Question 21

Elasticity of demand for labor: Determinants

Answer 21

The proportion of a firm’s cost taken up by labor costs:
- If most of a firm’s cost relate to labor, then they will be more affected by wage changes and therefore more responsive making their demand for labor more elastic.

How easily labor can be substituted with capital:
- If labor can be easily substituted with capital, firms will respond to an increase in wages by firing people, this makes the demand for labor more elastic

Time period:
-If wages go up, firms are not likely to immediately fire workers because of contracts, trade unions because it would be bad for workplace morale. This means demand for labor is not responsive to wage changes in the short run so is inelastic.
-However, if wages stay higher for a longer period firms may decide not to renew contracts, they may not replace workers who leave, or may decide not to hire new workers. So the demand for labor becomes more responsive to wage changes in the long run and demand is more elastic.

The elasticity of demand for the product produced

Question 22

Elasticity of supply for labor

Answer 22

The responsiveness of labor supply to a change in the wage rate.

Question 23

Elasticity of supply for labor: Determinants

Answer 23

The skills and qualifications and length of training period required:
-Wages increase -> occupation more attractive->more people want to join the profession
-If the occupation requires more skill and qualifications it is likely to be more inelastic but if it doesn’t require much skill, supply is likely to be more elastic.

Mobility of labor:
-If labor is more geographically and occupationally mobile, they will be more sensitive to changes in wages in one profession because they can easily switch to another profession. This makes labor supply inelastic

Time period:
-If wages go up or down workers are not likely to immediately quit because of contracts, loyalty, and mobility. This means supply is not responsive and labor supply is more inelastic in the short run.

Degree of vocation

Level of employment

Question 24

Specialization

Answer 24

Concentration on particular products or tasks. Instead of making a wide range of products, a firm may specialize in the manufacture of one or a few products.

Question 25

Division of labor

Answer 25

Occurs when workers specialize. Instead of producing the whole
good or service, a worker carries out one particular task. The key advantage claimed for the specialization of workers is lower cost per unit produced.

Question 26

Specialization: Advantages

Answer 26

Lower cost per unit produced

Output per worker increases

Workers can be trained more quickly

Knowledge about handling a full range of equipment may not necessarily be imparted

Time may be saved as workers will not have to move from one job to another

Breaking down the production process into a number of tasks may also make it easier to design machinery, enabling the use of workers alongside

Reduces pressure on workers

Workers can pursue their specific intrests

Question 27

Specialization: Advantages

Answer 27

Lower cost per unit produced

Output per worker increases

Workers can be trained more quickly

Knowledge about handling a full range of equipment may not necessarily be imparted

Time may be saved as workers will not have to move from one job to another

Breaking down the production process into a number of tasks may also make it easier to design machinery, enabling the use of workers alongside

Reduces pressure on workers

Workers can pursue their specific interests

Question 28

Specialization: Disadvantages

Answer 28

Risk of higher unit costs:
-Workers may get bored doing the same task each day causing them to not take care of their work and make more mistakes.
-Workers may also take more days off due to sickness and stay in their jobs for shorter periods of time.
-Difficult for workers to cover up for those absent

Services may fall if they are trained or practiced in only one job, they may encounter problems getting another job