Chapter 22 The labour market I. - Demand for labour The demand for labour comes from firms who need to hire workers to produce various goods and services. - It represents the various quantities of workers demanded by firms at different wage rates. - Wage rate is the amount of money paid to workers for their service over a period of time. II. Factors affected the demand for labour i. Derived demand: - Demand for labour is derived from the demand for the goods and services supplied by firms and the public sector. - Demand for the final product increases, the demand for labour will increase as firms usually need mote workers to raise their production. ii. Availability of substitutes: - As labour is a factor of production, one of its substitutes is machines. - Machines may be more efficient and cheaper than people. - It is possible to make increased use of machines and equipment which reduce the demand for labour. Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 1 of 18 iii. Productivity of workforce - Labour productivity is defined as the output per unit labour input. - If labour productivity increases, more output can be produced with the same number of workers. - Workers become more attractive to firms, increasing their demand for labour. III. Supply of labour - The supply of labour refers to the various quantities of workers at different wages. - If wage rate increases, more people are willing to work. IV. Factor affecting supply of labour i. Population size: - A higher population size usually leads to an increase in the size of the labour force, effectively increasing the supply of labour. ii. Migration - Emigration (people moving out of a country) leads to a decrease in labour supply. - Immigration (people moving into a country) leads to am increase in labour supply. Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 2 of 18 iii. Age distribution of population: - If a population is on average younger, then more people should fall into the working age, increasing the overall labour supply. iv. Retirement age: - Retirement age affects the upper limit of the working age range. - If the retirement age rises, workers on average work for a greater number of years and the labour supply increases. v. School-leave age - School-leave age affects the lower limit of working age range. - If the school-leave age rises, teenagers spend more years in school instead of seeking jobs, the labour supply decreases. vi. Female participation: - If female participation in the labour force increases, there will be a higher number of female workers available, the labour supply increases. vii. Skills and qualification: - Occupations that require more skills and qualifications for the worker to become qualified make it more difficult for workers to enter into those occupations. - This results in a lower supply of labour for those occupations. viii. Ability to move to different locations or types of employment: - Geographical mobility of labour refers to the ease and willingness of workers to move to different locations to find jobs. - Occupational mobility of labour refers to the ease and willingness of workers to switch between different types of job. - Higher geographical and occupational mobility of labour mean that the supply of labour rises. Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 3 of 18 V. - Wage determination The equilibrium wage is determined by the intersection of supply and demand for labour. VI. - The importance of the quantity and quality of labour to business A business has to consider whether the labour available meets the skills required to main quality standards. - If most of the workers are unskilled, firms may have to invest a lot of money in training workers. - When locating factories, businesses have to choose the location where there are enough workers near the site in the future if operations need to expand. VII. Impact of education and training on the quality of human capital - The quality of labour is closely related to human capital – the knowledge, skills and experience of the workforce. - Education and training are important as the former transfers knowledge to students, while the latter equip workers with hands-on skills and enables workers to gain more experience of performing different tasks. - Education and training will improve the quality of labour as well as the human capital over time. Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 4 of 18 Reference Subject content 1.2.5 The labour market What students need to learn: (a) Factors affecting the demand for labour: • demand for the final product (derived demand) • availability of substitutes, including machines • productivity of workforce. (b) Factors affecting the supply of labour: • population size • migration • age distribution of population • retirement age • school-leaving age • female participation • skills and qualifications • ability to move geographic locations/move to different types of employment. (c) Importance of the quantity and quality of labour to business. (d) Impact of education and training on human capital and quality of labour. Past exam questions (new syllabus) 1. Sample paper – Question 3(d) The government in Ghana has been advised to use the tax revenue from oil production to increase spending on education and training. More spending on education will mean more funds to be able to provide more years of schooling. More spending on training will mean employees will understand how to do their job better. Both should mean workers are more productive. However, by investing in education and training, they will forgo spending on other parts of the economy. With reference to the data above and your knowledge of economics, analyse the impact of increased spending on education and training on the quality of labour in Ghana. (6) AO2 and AO3 • Human capital is the level of skill, experience and knowledge of the workforce. • The government in Ghana has additional funds available due to tax revenues earned from oil. • More spending on education will mean more years of schooling/better quality schooling. • This is useful given that Ghana has fewer years of schooling compared to developed countries. • More spending on training will mean employees will understand how to do their job better. • Individuals will develop better skills. Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 5 of 18 • Literacy skills will be better, meaning that workers will be able to read instructions. • This will make workers more productive in the workforce, meaning that the quality of labour will be higher. • The Ghanaian government may come up with better ideas to make the business more productive. • This will mean the Ghanaian government has less money left for other activities. • This is an opportunity cost. • Healthcare may not get as much funding. • Workers may be less healthy. • The human capital and the quality of labour may worsen. 2. June 2019 – Question 3(d) Firms in Canada, the world’s second largest country, have been struggling to find the labour needed for specialist positions such as computer engineers and web designers. The ‘Global Talent Stream’ is a government programme that provides firms with a quick way to hire highly skilled foreign workers. High costs and long time commitments often stop Canadians from training. Although a processing fee is payable for each new employee, firms have welcomed the programme. With reference to the data above and your knowledge of economics, analyse why Canadian firms may have been struggling to hire the labour they need. (6) AO2 and AO3 • There may not be enough people in Canada undertaking the required training to gain the specialist skills and qualifications required • This may be because it takes too long or costs too much for the training • Canada is a very big country and so it may be difficult for the specialist workers to move from their geographic locations • There may have been a faster increase in demand for the specialist skills such as computer engineers and web designers, than the supply of them • Wages and rewards for the computer engineers/web designers may be higher in other countries, encouraging workers to leave Canada Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 6 of 18 3. Januaray 2020 – Question 3(d) Technology has been used to perform some of the jobs previously done for many years by humans, for example, robots in factories and self-checkout machines. This substitution of capital for labour is likely to increase as technology advances. At most call centres, humans currently respond to customer queries but Google has developed an automated assistant. Many telecom firms have switched to using calls made by these automated assistants. With reference to the data above and your knowledge of economics, analyse how the demand for labour might be affected by the use of machines. (6) AO2 and AO3 • The demand for labour is likely to be affected by the wage rate, derived demand, productivity and the availability of substitutes • Machines provide a substitute for labour in many jobs and this factor is increasing • Google has developed an automated assistant meaning jobs currently performed by labour in call centres may also be replaced by machines • If machines can do the job more efficiently and/or cheaper then firms are likely to want to switch to machines, reducing the demand for labour • The more technology advances, the more substitutes there will be for labour and so the demand for labour is likely to continue to decrease 4. Januaray (R) 2020 – Question 3(a) Which one of the following is most likely to cause an increase in the supply of labour? (1) A A higher retirement age B A higher school-leaving age C A fall in population D A fall in demand for the final product Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 7 of 18 Past exam questions (previous syllabus) 1. June 2011 - Question 1(c)(i) Figure 1b shows the age distribution of the population of Russia in 2009 and the projected age distribution in 2025. Between 2009 and 2025, the population of Russia can be described as an ageing population. Using the data in Figure 1b, explain the term ageing population. (3) Average age (1 mark) of the population is increasing (1 mark). Reference to data, 1 mark. Also accept vague statement: More older people than younger people (1 mark). More detailed reference to data 2 marks i.e. giving percentages in age groups. 2. January 2013 - Question 1(b) The supply of labour is the main reason why wages in the agricultural sector are always less than those in the tertiary sector. Discuss. (6) Reasons for wages in agricultural sector being less (supporting statement) 1 mark each, up to 2. Development 1 mark e.g .Often no training required (1 mark) for agricultural workers so supply is greater (1 mark) Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 8 of 18 Reasons for wages in tertiary sector being more (supporting statement) 1 mark each, up to 2. Development 1 mark e.g. In tertiary sector most workers need qualifications (1 mark) e.g. many office jobs (1 mark) Maximum for reference to either agricultural or tertiary workers = 3 marks Maximum for references to both agricultural workers and tertiary workers = 4 marks Must have evaluation/reasoned judgement for 5- 6 marks e.g. Reference to “always less” being incorrect. Wages may be less in agricultural sector but it depends which occupations in the tertiary sector are being compared (1 mark) e.g.in retailing and domestic service no qualifications are need so wages can be as low as in agriculture. Also credit reference to • low wages in tertiary due to number of female workers not total supply. • Government interference e.g. minimum wage rates demand factors rather than supply e.g. if low demand for agricultural workers then wages will be low. 3. January 2013 - Question 1(c)(i), (ii) and (iii) Figure 1c shows the birth rate, death rate and net migration rates for Bolivia and Bulgaria in 2010. (i) In which country is the death rate greater than the birth rate? (1) Bolivia Bulgaria Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 9 of 18 (ii) With reference to the data in Figure 1c explain how the population of Bolivia will have changed in 2010. (4) • Population increasing,(1 mark) due to • BR > DR,(1 mark) • Reference to migration rate being negative but outweighed by difference between BR>DR (1 mark). If only state that migration rate is negative no marks. 1 mark for reference to figures. (iii) If the rates shown in Figure 1c remain the same in the future, the problems created for the economy of Bulgaria will be greater than the problems created for the economy of Bolivia. Do you agree with this statement? Give reasons for your answer. (6) Problems facing Bulgaria, 1 mark each, up to 2. Development 1 mark e.g. Population falling (1 mark) so lower workforce (1 mark), lower economic growth (1 mark). Problems facing Bolivia, 1 mark each up to 2. Development 1 mark e.g. High birth rate (1 mark), high government expenditure on children (1 mark), high dependency rate (1 mark). Maximum for 1 sided arguments = 3 marks Maximum for both sides = 4 marks Must have evaluation/reasoned judgement for 5-6 marks e.g. Bulgaria problems greater as in the future Bolivia will have a workforce but Bulgaria faces low economic growth due to falling population. Also accept for evaluation/judgement: • Bulgaria might not face greater problems as the fall in population could be offset by increases in productivity/more efficient workforce Government interference in either or both economies could overcome the problems e.g. incentives to increase BR, immigration in Bulgaria, birth control in Bolivia. Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 10 of 18 4. June 2013 - Question 2(d)(ii) and (iii) (ii) Apart from loans and grants, identify and explain two incentives a government could use to encourage firms to set up in a particular region of the country. (4) Each incentive identified, 1 mark. E.g. tax holidays, free advice, subsidies, education and training, improved infrastructure, rent free land and factories. Development, 1 mark for each reason identified. E.g. tax holidays mean less tax paid, more profit. Education and training saves the firm money as it gives them a skilled labour force. 2 + 2 marks (iii) The benefits to the economy of regional policy are greater than the disadvantages. Do you agree with this statement? Give reasons for your answer. (6) Each benefit of regional policy identified , 1 mark (up to 2). E.g. lowers unemployment in regions, reduces disparity between regions. Development up to 2 marks. E.g. unemployment falls so standard of living rises. Each disadvantage of regional policy identified , 1 mark (up to 2). E.g. opportunity cost. Development up to 2 marks. E.g. the money could have been spent elsewhere in the economy and been of greater benefit – education and health. One sided argument up to 3 marks Must have both sides of the argument for 4 marks Award 5th and 6th mark for evaluation/reasoned judgement. Accept limitations of regional policy, choice of regions (high unemployment or congested regions), time period involved. Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 11 of 18 5. June 2014 - Question 1(b)(i) and (ii) Study the population pyramids for India and Norway in Figure 1c. (i) What is meant by an ‘ageing population’? (2) Definition: Accept for 2 marks either • average age of the population is increasing or • birth rate less than death rate Vague definition, 1 mark e.g. more old people than young people. Do not allow: People getting older (ii) In which country does Figure 1c show an ageing population? (1) India Norway Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 12 of 18 6. January 2016 - Question 2(a)(ii) Figure 2a shows employment by sector in the developing economies of Sub-Saharan Africa in 1995 and 2015. (ii) Using the data in Figure 2a, describe the changes in employment by sector in the developing economies of Sub-Saharan Africa between 1995 and 2015. (4) • Primary sector has reduced (1) or data reference i.e. changed from approx 65% to 60% • Secondary sector is unchanged (1) or data reference i.e. stays at 10% • Tertiary sector has increased (1) or data reference i.e. changed from approx 25% to 30% For the final mark • Tertiary sector is now more important (1) or • Primary sector is still the largest employer (1) 7. June 2016 - Question 1(c)(iii) In 2015, public sector bank workers in India called off a strike after a wage increase was agreed. (iii) A wage increase for public sector bank workers in India will lead to some public sector bank workers losing their jobs. Do you agree with this statement? Give reasons for your answer. (6) Arguments supporting the statement (up to 2 marks) Increase job losses because: • Cost more to employ them which means that the government will want to keep overall costs the same so they will reduce the number of workers employed • Job cuts may have been negotiated with the unions to secure the 15% wage increase Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 13 of 18 Arguments not supporting the statement • Depends if government decides to absorb the increase in labour costs • Government may be able to offset the increase in labour costs with costs savings elsewhere (eg spend less on IT for the bank branches) • Depends if the bank is opening more branches • Depends if workers increase productivity Further guidance • Up to maximum of 3 marks for a one sided argument • Up to maximum of 4 marks for a two sided argument • Final 2 marks requires supported judgement eg • Depends if any job losses are accounted for by people retiring • Depends on size of wage increase 8. June (R) 2016 - Question 2(d) The main reason governments try to influence the location of firms is to provide a solution to the problem of regional unemployment. To what extent do you agree with this view? Give reasons for your answer. (6) Arguments supporting the statement with development (up to 3 marks) • Governments seek to maintain jobs in areas which are in decline as low unemployment is an economic objective. • Government often provides incentives (eg grants, tax breaks) to firms to relocate in areas of high unemployment so that jobs will move to the area Arguments not supporting the statement with development (up to 3 marks) • Discussion of other reasons why governments try to influence the location of firms eg to reduce congestion, to reduce income inequality Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 14 of 18 Further guidance • Up to maximum of 3 marks for a one sided argument • Up to maximum of 4 marks for a two sided argument Final 2 marks requires supported judgement e.g. candidate reaches a conclusion based on examination of evidence and quality of argument. e.g. it may not just be for one particular reason, but for a combination of reasons influenced by political and social factors. The nature of the industry may also be a consideration. 9. January 2017 - Question 1(a)(i), (ii), (iii) and (iv) Figure 1a shows the age distribution of the population in China in the years 2000, 2015 and 2030 estimated (est). The data in Figure 1a shows that China is experiencing an ageing population. (i) With reference to Figure 1a, explain the term ‘ageing population’. (3) Ageing population: average age of population is increasing, 2 marks. Partial/vague definition e.g. population getting older, 1 mark. Reference to data, 1 mark. e.g. 0-14 age group falling or 65+ increasing or correct reference to 15-64 group. Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 15 of 18 In 1979 the Chinese government limited couples to only one child but in 2015 the government announced it would allow couples to have two children to overcome the problems of an ageing population. (ii) Identify one problem faced by the government of a country that may result from an ageing population. (1) 1 mark for problem identified e.g. increased government expenditure/accept specific types of expenditure e.g. pensions, health service. (iii) Identify one policy, apart from allowing couples to have more children, that could overcome the problem you have identified in (a)(ii). (1) 1 mark policy identified e.g. increase taxes, cut services. 10. June 2017 - Question 1(c)(i) Brazil is the world’s largest coffee producer with approximately 220,000 coffee farms. The bigger plantations are mechanised and use division of labour. It is estimated that the number of Brazilians employed in coffee production is just over 5 million. Briefly explain two factors that may affect the demand for labour on Brazilian coffee farms. (4) Identification of a factor (1 mark) with explanation (1 mark) Factor e.g. demand for final product, amount of machinery used, productivity of workers. Explanation of the reason e.g. • Demand for coffee (1) if it increases, more workers will be needed to grow more of it (1) • Amount of machinery (1) a new coffee harvesting machine means less labour is needed (1) • Productivity (1) the more productive a coffee worker, the fewer workers needed (1) Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 16 of 18 11. June (R) 2017 - Question 1(d)(i) Spain is the world’s biggest exporter of strawberries. The strawberry industry in Spain employs approximately 50,000 people. Identify and briefly explain two factors that might determine the supply of labour in the Spanish strawberry industry. (4) 1 mark for reason, 1 mark for development E.g. • change in size of labour force (1) immigration can increase available supply (1) • change in role of women (1) more women choosing to work rather than stay at home – increase in size of working population (1) 12. January 2018 - Question 1(b) It is estimated that 80% of all toys in the world are made in China. There are over 7,200 toy manufacturing businesses in China employing 620,000 workers. Explain two factors that might affect the supply of labour in China. (4) Identification of a factor (1 mark) with explanation (1 mark) e.g. Demographic changes (BR/DR) (1) the supply of labour may well reduce in China as a result of the ‘one child’ process (1). e.g. amount of women (1) society has changed so more women join the workforce increasing the supply of labour (1). 13. June 2018 - Question 1(d) The manager of the Bournville factory is paid approximately 12 times more than a production line worker. Differences in pay can always be explained by the demand for, and the supply of, labour. Do you agree with this statement? Explain your answer. (6) Arguments supporting the statement (1 mark) with development (up to 2 marks) Differences in pay can always be explained by the demand and supply of labour because: • if supply is low, as with a skilled manager, wages will reflect this and be high • if supply is high because few skills or qualifications are needed then wages are low • demand for labour is a derived demand and if demand for the product falls so do wages Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 17 of 18 Arguments not supporting the statement (1 mark) with development (up to 2 marks) Differences in pay can not always be explained by the demand and supply of labour because: • labour markets are subject to interference which prevents the operation of D and S, e.g. the MWR • trade unions can secure above equilibrium wage rates • Some occupations are public sector which mean wages are set e.g. teachers, nurses Further guidance • Maximum for 1 sided argument (3 marks) • Maximum for both sides (4 marks) To reach 5 – 6 marks needs a reasoned judgement or conclusion • depends on the degree of interference in the labour market • depends on the employer, some may be more generous or provide other financial incentives Pearson Edexcel International GCSE in Economics Chapter 22 The labour market Teacher: Kenny Kwok Page 18 of 18
