Chapter 2.3 Understanding what affects pay

Supply of Labour Refers to the amount of work each worker is willing to perform. It is affected by a combination of Monetary and Non-Monetary factors: –Monetary Factors – the level of wages offered (the higher the wage rate or salary, the more willing a worker will be to supply their labour) –Non-Monetary Factors – Gender, Ethnic Origin, Taxation, State Benefits

Demand for Labour The demand for labour comes from businesses that need workers to produce their goods and services. Is influenced by: Derived Demand – businesses don’t demand workers for their own sake but because businesses need workers to produce goods and services for the firm to sell. This is known as derived demand. Government influence – minimum wages, right to paid holiday, maternity/paternity pay How wages are determined – the market wage

Differences in wages The wage rate for a particular job is determined by the demand for and the supply of labour. However, workers are paid different amounts depending on their job – these differences are known as wage differentials and occur for various reasons: –Training and skills –Gender –Age –Trade unions –Government influence

Why do wage rates change? Surpluses of labour – more people want to work in a particular occupation than the number of jobs available. –Likely to lead to lower wages in this occupation Shortages of labour – a shortage of labour in a particular industry –Businesses need to offer higher wages to encourage more workers to supply their labour

Questions: 1.Why do you think the minimum wage was introduced in the UK? 2.What effect will this have on the demand for labour and supply of labour? 3.Using the idea of supply and demand, explain why footballers are paid more than rugby players 4.Here is a list of some of the current occupations where there is a shortage of labour: civil engineers, chemical engineers, veterinary surgeons, secondary school teachers of maths and science, geologists, skilled ballet dancers, skilled chefs, skilled senior care workers, skilled sheep shearers. a)What do you think will happen to the pay for these positions? Explain your reasoning. b)If the government was keen to ensure that these positions were filled, what action could it take?