Wage Determination

Question 1

How are wages determined?

Answer 1

The wage rate of labour is determined by the demand for labour and the supply of labour and their relative elasticity.

Question 2

Current labour market issues

Answer 2

Skill shortage in certain areas eg mathematicians in the UK. If workers are short on skills, they may not be as experienced, therefore are more inefficient, potentially increasing costs.

Unemployment - firms will be able to exploit workers due to high unemployment rates

Increasing retirement ages - More people will be at work, so may potentially be harder to obtain a job, increase unemployment in certain areas.

Underemployment - Worker not using their skill to full capacity (working in a lower skilled job) Therefore is not getting possible highest wages. Potentially losing skills.

Temporary, flexible and zero-hour contracts - A worker may not be needed for weeks/months, and they won’t get paid, only for hours worked. (Can be considered an exploitation of workers).

Tax Credits - The amount of money of taxpayers are permitted to subtract from taxes owed to the government.
Tax credits will give workers an incentive to work for lower wage jobs/ fewer hours. However, if tax credits are lower, this will give workers less incentive to work full time due to paying higher income tax.

Question 3

Minimum wage in the UK

Answer 3

Before April 2018 - £7.20
After April 2018 - £7.83
For workers 25+ years old.

Question 4

Pros and Cons for Minimum Wage

Answer 4

Pros;
People can afford an acceptable standard of living
More incentive to work
Protect workers from being exploited
Decrease pressure on social welfare

Cons;
Demand for labour may decrease if firms are not willing to pay wage
Potential increase in unemployment
May lead to a surplus amount of workers in competitive market.
Not regionally based.

Question 5

Pros and Cons for Maximum Wage

Answer 5

Pros;
Demand for labour will increase in the market
Minimise wage gap between lower and higher wage.

Cons;
Less incentive to work higher paying jobs
Potential decrease in innovation
May push workers to work abroad

Question 6

Someone can earn different wage rates based on

Answer 6

Age
Gender
Ethnic Background
Education
Training and Experience
Performance of Work

Question 7

Inelastic supply of labour

Answer 7

https://www.economicshelp.org/wp-content/uploads/2012/11/effect-migration-on-wages-labour-market-id.png (Ignore shift in supply curve)

With inelastic supply of labour, an increase in demand for labour from D1 to D2 leads to an increase in wage rates (from W2 to W1) and an increase in employment from Q2 to Q3

Question 8

Inelastic demand of labour

Answer 8

https://www.economicshelp.org/wp-content/uploads/2012/12/supply-labour-right.jpg

With inelastic demand for labour, an increase in supply of labour from S to S2 leads to a fall in wage rates (from W1 to W2) but an increase in employment from Q1 to Q2