Cambridge O Level2281

Workers

Economics 2281 Chapter Notes

What this chapter covers

Workers - Factors affecting an individual’s choice of occupationWorkers - Wage determinationWorkers - Reasons for differences in wagesWorkers - Mobility of labourWorkers - Division of labour
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In this chapter

  1. 1Why People Work: Wages and Rewards
  2. 2Explaining Differences in Earnings
  3. 3Specialisation and the Division of Labour
  4. 4Introduction to Trade Unions
  5. 5How Trade Unions Operate
  6. 6Modern Trends in the Labour Market

1. Why People Work: Wages and Rewards

People supply their labour primarily to earn an income, which allows them to purchase goods and services to satisfy their needs and wants. The payment a worker receives is called a wage, and the 'price' of this labour (the wage rate) is determined in the labour market by the interaction of demand for labour by firms and the supply of labour from workers. However, pay is not the only reason people work. People are also motivated by non-wage factors, such as job satisfaction, holiday entitlement, and job security. When choosing a job, individuals weigh up both the wage and non-wage benefits.

Key term

Wage Rate: The price of labour, determined by the interaction of the demand for and supply of labour in a market.

Examiner insight

Examiners reward answers that clearly differentiate between wage factors (direct financial payments) and non-wage factors (other benefits of a job).

Worked example 14 marks

Explain two non-wage factors that might influence a person's decision to become a nurse. [4]

  1. 1

    Step 1: Identify the first non-wage factor. A key non-wage factor is job satisfaction and the desire to help others. Working as a nurse provides a high degree of personal fulfilment by caring for the sick and contributing positively to society. [2 marks]

  2. 2

    Step 2: Identify the second non-wage factor. Another factor is job security. Healthcare is a fundamental need, meaning there is always a consistent demand for nurses, making it a very stable career compared to jobs in more volatile industries. [2 marks]

Recap

  • People work to earn an income to satisfy their needs and wants.
  • The wage rate is determined by the demand for and supply of labour.
  • Wage factors are the financial rewards for work, such as basic pay, overtime, and bonuses.
  • Non-wage factors are the non-financial benefits, like job satisfaction, holiday allowance, and career prospects.
  • Individuals consider both wage and non-wage factors when choosing an occupation.

Quick check

  1. List two examples of wage factors for a job.2 marks

2. Explaining Differences in Earnings

Wages differ significantly between occupations and even between individuals in the same job. These differences are explained by factors affecting the demand for and supply of labour. High demand for a skill combined with a low supply of workers with that skill leads to high wages (e.g., surgeons). Conversely, low demand and high supply lead to low wages (e.g., unskilled cleaners). Key factors include: skills and qualifications (higher skills are scarce and more productive); experience (experienced workers are more productive); risk or unpleasant conditions ('danger money'); and the strength of trade unions. An older, skilled worker has had time to accumulate skills and experience (human capital), making them more productive and in higher demand than a younger, unskilled worker, thus commanding a higher wage.

Key term

Human Capital: The stock of knowledge, skills, and experience embodied in an individual or workforce, which determines their productive capacity.

Common pitfall

Stating that one job pays more than another without explaining the underlying economic reasons related to demand, supply, and productivity.

Worked example 15 marks

Discuss why an older, skilled worker is likely to earn significantly more than a younger, unskilled worker. [5]

  1. 1

    Step 1: Explain the role of skills and qualifications. A skilled worker possesses specific training and qualifications which makes them more productive and valuable to a firm. This human capital is scarce, increasing the demand for their labour and thus their wage. A younger, unskilled worker lacks this, so their supply is high and wage is low. [2 marks]

  2. 2

    Step 2: Explain the role of experience. An older worker has had more years in the workforce to gain experience. This experience often leads to greater efficiency, problem-solving ability, and reliability, making them more productive and justifying a higher salary. A younger worker has not yet had time to build this experience. [2 marks]

  3. 3

    Step 3: Conclude by linking to supply and demand. The combination of high demand for skilled, experienced labour and its relatively low supply pushes wages up. The high supply of and lower demand for unskilled, inexperienced labour keeps their wages down. [1 mark]

Recap

  • Differences in earnings are caused by factors affecting the demand for and supply of labour.
  • Workers with higher skills, more education, and greater experience typically earn more.
  • Jobs that are dangerous or have unsociable hours may offer higher pay as compensation.
  • The relative scarcity of a certain type of labour is a key determinant of its wage.
  • Discrimination can also lead to wage differentials unrelated to productivity.

Quick check

  1. State two reasons why a pilot earns more than a taxi driver.2 marks

3. Specialisation and the Division of Labour

The division of labour is a form of specialisation where the production process is broken down into a series of small, separate tasks, with each worker focusing on just one task. This was famously observed by Adam Smith in a pin factory and later implemented on a massive scale by Henry Ford in car manufacturing. The main benefit for a firm is a huge increase in productivity and efficiency. Workers become very fast and skilled at their specific task, less time is wasted moving between tasks, and it allows for the use of specialist machinery. However, for the worker, it can lead to boredom and monotony. It also makes them less flexible, and they risk unemployment if their specific skill is no longer needed (e.g., due to automation).

Key term

Division of Labour: The specialisation of workers on specific tasks in the production process.

Fun fact

In his 1776 book 'The Wealth of Nations', Adam Smith noted that one worker could make maybe 20 pins a day, but with division of labour, 10 workers could collectively make 48,000 pins a day.

Worked example 16 marks

Explain two advantages and one disadvantage of the division of labour for a business. [6]

  1. 1

    Step 1: Explain the first advantage - increased productivity. Workers become experts at their single task, performing it much faster and with fewer errors than if they had to perform many tasks. This raises output per worker. [2 marks]

  2. 2

    Step 2: Explain the second advantage - lower costs. Higher productivity means more output can be produced with the same number of workers, lowering the average cost per unit. Also, workers can be trained for a single, simple task more quickly and cheaply. [2 marks]

  3. 3

    Step 3: Explain the disadvantage - worker motivation. Repetitive tasks can become extremely boring and monotonous for workers. This can lead to low morale, higher rates of absenteeism, and a higher staff turnover, which can increase recruitment and training costs for the business in the long run. [2 marks]

Recap

  • Division of labour means breaking a production process down into small, specialised tasks.
  • It leads to a significant increase in labour productivity and efficiency.
  • Benefits for firms include higher output, lower costs, and consistent quality.
  • Drawbacks for workers include monotony, boredom, and a potential lack of transferable skills.
  • Over-specialisation can make an economy vulnerable if demand for its specialised product falls.

Quick check

  1. State one benefit of the division of labour for a worker.1 mark
  2. State one drawback of the division of labour for a firm.1 mark

4. Introduction to Trade Unions

A trade union is an organisation made up of workers who join together to protect their interests and improve their pay and working conditions. By joining together, workers have more power when negotiating with their employer than they would as individuals. There are four main types of trade union:

  1. Craft Unions: Represent workers with the same skill across different industries (e.g., a union for electricians).
  2. Industrial Unions: Represent all workers in a specific industry, regardless of their skill or job (e.g., the National Union of Mineworkers).
  3. General Unions: Represent workers from a wide variety of occupations and industries (e.g., Unite in the UK).
  4. White-Collar Unions: Represent workers in professional, administrative or non-industrial jobs (e.g., a teachers' union or a pilots' association).

Key term

Trade Union: An organisation of workers that aims to protect its members' interests and improve their pay and working conditions.

Examiner insight

Marks are often awarded for being able to identify and describe different types of trade unions with relevant, real-world or plausible examples.

Worked example 14 marks

Distinguish between an industrial union and a general union. [4]

  1. 1

    Step 1: Define an industrial union. An industrial union represents all workers within a single industry, such as all workers in the steel industry or the car industry, regardless of their specific job role (e.g. cleaner, machine operator, manager). [2 marks]

  2. 2

    Step 2: Define a general union and highlight the difference. A general union, in contrast, is open to workers from many different industries and occupations. It is not restricted to one sector. For example, it might have members who are bus drivers, hospital porters, and factory workers all in the same union. The key difference is the breadth of membership. [2 marks]

Recap

  • A trade union is an organisation that represents workers.
  • The main aim of a union is to improve pay and working conditions for its members.
  • Craft unions are for workers with a particular skill.
  • Industrial unions are for workers in a specific industry.
  • General unions are open to workers from many industries.
  • White-collar unions represent professional and non-manual workers.

Quick check

  1. A union representing only teachers and headteachers is an example of which type of union?1 mark

5. How Trade Unions Operate

The primary method used by trade unions is collective bargaining. This is where union representatives negotiate with employers on behalf of all their members in a workplace or industry. They negotiate on issues like pay rises, working hours, holiday entitlement, and health and safety. The resulting agreement applies to all workers represented. If collective bargaining fails and an agreement cannot be reached, the union may decide to take industrial action to put pressure on the employer. Forms of industrial action include:

  • Strike: Workers refuse to work.
  • Overtime ban: Workers refuse to work more than their contracted hours.
  • Work-to-rule: Workers stick rigidly to their job description and do no extra tasks, which can slow down production.

Key term

Collective Bargaining: The process of negotiation between employers and a group of employees (usually represented by a trade union) aimed at reaching agreements to regulate working conditions.

Common pitfall

Confusing 'work-to-rule' with a strike. A work-to-rule means doing the bare minimum required by the contract, whereas a strike is a complete stoppage of work.

Worked example 15 marks

Explain how membership of a trade union might be beneficial to a worker. [5]

  1. 1

    Step 1: Explain the benefit of collective bargaining. A union negotiates for pay and conditions on behalf of all members. This 'strength in numbers' gives them more bargaining power than an individual worker, potentially leading to higher wages and better benefits than the worker could achieve on their own. [2 marks]

  2. 2

    Step 2: Explain the benefit of improved working conditions. Unions campaign for and monitor health and safety standards, reasonable working hours, and fair holiday/sick pay policies. This can lead to a safer and less stressful working environment. [2 marks]

  3. 3

    Step 3: Explain the benefit of legal support and representation. If a worker has a problem, such as unfair dismissal or discrimination, the union can provide free legal advice and representation, which would be very expensive for an individual to fund themselves. [1 mark]

Recap

  • Collective bargaining is the main function of a trade union.
  • It involves negotiating with employers on behalf of members.
  • If negotiations fail, a union may resort to industrial action.
  • A strike is a complete stoppage of work.
  • A work-to-rule involves doing the bare minimum required by a contract, slowing production.
  • An overtime ban prevents the employer from using staff for extra hours.

Quick check

  1. What is the name for the process where unions negotiate with employers?1 mark

End-of-chapter exercise

Test yourself on the whole chapter. Work through these before moving on.

  1. Define 'division of labour'.2 marks
  2. State two non-wage factors that can influence a person's choice of job.2 marks
  3. Explain the difference between a strike and a work-to-rule as forms of industrial action.4 marks
  4. Explain two reasons why a worker in the tertiary sector might earn more than a worker in the primary sector.4 marks
  5. With reference to a diagram, explain how the wage rate for software engineers is determined in a free market.6 marks
  6. Analyse the benefits for a firm of employing part-time workers.5 marks
  7. Discuss whether the decline of trade union membership in many developed countries has been a positive or negative development for workers.8 marks
  8. An older skilled worker’s pattern of spending and saving is likely to be different from that of a younger unskilled worker. Discuss why.5 marks
  9. Explain how collective bargaining can benefit both employees and employers.6 marks
  10. Evaluate the impact of increased specialisation on an economy.8 marks

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