Chapter 18: Workers Flashcards
Factors that influence an individual’s choice of occupation
Wage Factors
Non-Wage Factors
Limiting Factors
Wage factors
Factors relating to total pay, influencing what job a person decides to do. Examples include:
Wage/Salary
Bonuses
Commissions
Overtime pay
Wage/Salary
Usually per hour or per year/paid per month
Wage/Salary: Piece-rate
Paid per unit of output (rewards efficiency, incentive to be productive) (otherwise workers might cut corners with quality)
Wage/Salary: Time-rate
Paid per hour worked (workers work salary)
Bonus
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
Commission
Involves workers receiving a proportion of the value of the sales they make.
Overtime pay
Paid to the workers who work in excess of the standard working week.
Non-wage factors
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
Fringe benefits
Extra benefits are provided to workers by their employers. Examples include:
Free subsidized food/drinks
Housing
School fees
Company car
Pension
Payment made during a person’s retirement which that person or their employer has contributed during their working life.
Limiting factors
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
Wage determinants
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
Factors affecting labor supply
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.
Factors affecting labor demand
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
Diagram
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
Government policy: Minimum wage
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)
Discrimination
Social norms from history
Women take of children, as a result have less time to work
Elasticity of demand for labor
The responsiveness of labor demand to a change in the wage rate.
Elasticity of demand for labor: Determinants
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
Elasticity of supply for labor
The responsiveness of labor supply to a change in the wage rate.
Elasticity of supply for labor: Determinants
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
Specialization
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.
Division of labor
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.
Specialization: Advantages
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
Specialization: Advantages
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
Specialization: Disadvantages
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
