Chapter 18: Workers Part 1 1 Workers There are 2 types of factors that influence an individual’s choice of occupation 1. wage/ monetary/ pecuniary factors 2. non-wage/ non-monetary/ non-pecuniary factors wage factors The total pay received by a worker is called earnings Earnings may include basic wage, overtime pay, bonus, and commission Wages/ Pay/ Salaries Wage rate is a payment which an employer contracts to pay a worker. It is the basic wage a worker receives per unit of time or unit of output. higher wage rate on offer, more a person would want to do the job The wage of many workers is based on 1) a time rate system: according to the number of hours employees work 2) a piece rate system: according to the amount employee produce Overtime Overtime pay may be paid to the workers who work in excess of the standard working week the benefit of overtime for both employees and employers. employees: ability to increase their pay Royal Institution 2 maybe attracted by jobs that offer regular overtime employers enables employers to respond to higher demand without taking on new workers. It is easier, less costly, and less disruptive to reduce overtime than to sack (lay off) workers if demand declines There is a risk, however, that workers may become tired as a result of working for longer hours some employers have found that when workers are aware that they are going to be working for longer hours, they pace themselves accordingly and put less effort into each hour. Bonuses A bonus is an extra payment It can be paid to workers who produce above a standard amount finish a project ahead of time secure a profitable contract contribute to higher profits in some other way Bonuses can provide an incentive for workers to produce both a high and a good quality output or to stay with a firm Resentment may be caused if it is thought that they are awarded unfairly. Then workers may demotivate and resign Commission The commission is often paid to the salespeople. It involves them receiving a proportion of the value of the sales they make Non-wage factors Non-wage factors People take into account a range of other factors including • • • • job satisfaction type of work working conditions working hours Royal Institution 3 • • • • • • holidays pensions fringe benefits job security career prospects size of firm and location. Type of work Most people would rather do non-manual than manual work Non-manual work also tends to be better paid non-manual worker: a person whose job involves the use of their mind, rather than the use of their hands or physical strength. Ex: professors, salesperson, technicians, computer tech For example, university professors tend to be held in higher regard than stone masons. Some people are prepared to undertake dangerous work, for example deep diving and bomb disposal, but most people prefer to work in a safe environment Working conditions People like to work in pleasant surroundings, with friendly colleagues and enjoying regular breaks. Working hours occupations vary in terms of the number of hours expected from workers and the timing of those hours. some occupations offer workers the opportunity to work part-time A Number of them also offer flexible working hours, where workers alter the hours they work from week to week holidays the law sets down a minimum length of holiday entitlement for full-time workers Teaching is one occupation, well known for the length of holidays on offer Pensions Some jobs provide their workers with generous pensions Generally, workers in the public (state) sector receive more generous Pensions than those in the private sector Fringe benefits Fringe benefits are the extra benefits provided to workers by their employers. Ex: free or subsidised meals, health schemes, and social and leisure facilities Royal Institution 4 Job security A high degree of job security means that workers are unlikely to be made redundant. Such a situation is more likely to occur in occupations where there is a high demand for the product and workers are given long-term contracts Civil servants → high job security agricultural and building workers → high job security Career prospects People are often prepared to accept low wages at the start of their careers if they think there is a good possibility that they will gain promotion to a well-paid and interesting post ex: Trainee accountants, barristers, and doctors Size of the firms People are often attracted to jobs in large firms and organisations. This is because such firms and organisations often pay more and offer better career prospects, job security and fringe benefits than smaller ones Location People may choose an occupation which is close to their home. This will mean that they do not have to spend much money or time on travelling to and from work. Limiting factors people's choice of occupation is limited by a number of factors qualifications skills experience the place where they live occupational mobility geographical mobility Occupational choice and opportunity cost Choosing to take up one occupation involves rejecting other occupations. Workers have to decide what is important to them. A worker may be prepared to give up a well-paid job, or the opportunity to undertake such as job, in favour of a less well-paid job that offers more job satisfaction. For example, a merchant banker may resign to take up a job as a teacher. Royal Institution 5 Wage determination and the reasons for differences in earnings The key factors that determine the amount of pay received by workers and why some workers earn more than others are the demand for and supply of their labour relative bargaining power of employers government policies public opinion public opinion 1) demand and supply higher the demand for and the lower the supply of workers in an occupation, the higher pay is likely to be example Doctors low supply: There is only a limited number of people with the necessary qualifications, and the willingness and ability to undertake a long period of challenging training to become doctors Cleaners low supply: because of involving unsociable hours, not very pleasant working conditions, no good career prospects, high supply: not require any qualifications, special skills, or minimum amount of training Unskilled workers are generally paid less than skilled workers. Demand for skilled workers is high, while their supply is low. There are two main influences on the demand for workers. 1) amount of output they can produce 2) price for which that output can be sold. Skilled workers are usually highly productive producing both a high quantity and a high quality of output per hour Demand high skilled, high qualification high productivity Supply high skilled, high qualification nature of the job high dangerous job – low supply reasonable price of the products Royal Institution 6 amount of output ACTIVITY 1 Under which circumstance is an occupation likely to be well paid? a) Demand is high/low. b) Supply is high/low.. c) Workers have strong/weak bargaining power. d) Workers are skilled/unskilled. 2) Relative bargaining power if most of the workers are members of a trade union or professional organization which can bargain collectively on their behalf ex: Doctors and lawyers have more bargaining power because they would be difficult to replace with other workers. Then Cleaners and waiters have less bargaining power. Public sector workers in many countries belong to a trade union or professional organization more than private sector workers. Therefore government sector employees have more bargaining power. 3) Government policies A government influences the ages in the public sector and private sector government policies may have an impact on particular occupations ex: government introduced a law requiring car drivers, driving instructors would be likely to rise Government policies like the national minimum wage (NMW) The national minimum wage is a minimum rate of wage for an hour’s work, fixed by the government for the whole economy. Such a policy imposes a wage floor, making it illegal to pay a wage rate below that following are the argument and counter-argument on NMW Argument it may cause unemployment since the supply of people wanting to work at this wage rate exceeds demand for workers' labour Counter argument NMW can raise both the wage rate and employment because paying a higher wage to workers will raise their motivation and hence their productivity. combined with higher demand for products arising from higher wages, can increase demand for labour Royal Institution 7 figure 18.2 figure 18.3 Public opinion Public opinion tends to consider that jobs which involve long periods of study and training should be highly rewarded Public opinion can influence wage rates in a number of ways ● One is the wage claims made by the workers. For example, firefighters tend to regard their labour as being worth as much as that undertaken by the police ● Public opinion can put pressure on a government to revise the wages discriminations discrimination occurs when a group of workers is treated unfavorably in terms of employment , the wage rate, the training received and/or promotional opportunities For example, some employers may be reluctant to have female workers women still get paid less than men. There are a number of reasons for this • • • • women tend to be less well qualified than men (women now going to university than men) be more heavily concentrated in low-paid occupations less likely to belong to trade unions and professional organizations still discriminated against Why earnings of occupations change over time Changes in the demand for labour • An increased demand for the product → increase demand for labour • A rise in labour productivity → increase demand for labour • A rise in the price of capital → increase the demand for labour Changes in the supply of labour • • A fall in the labour force → decrease the supply for labour A rise in the qualifications or length of training required to do the job → decrease the supply for labour Royal Institution 8 • • A reduction in the non-wage benefits of a job → decrease the supply for labour A rise in the wage or non-wage benefits in other jobs Changes in the stages of production Primary sector: covers agriculture, fishing, forestry, mining and other industries which extract natural resources. Secondary sector: covers manufacturing and construction industries. Tertiary sector: covers industries which provide services. ex: judges, surgeons primary sector workers → decrease demand for labour → low wage secondary and tertiary sectors → increase demand for labour → high wage there are some high-paid workers in the primary sector and some low-paid workers in the tertiary sector. For example, an engineer working in the oil industry is likely to earn more than a shop assistant Changes in bargaining power A change in unions' bargaining power or willingness to take industrial action can affect earnings high bargaining power → ability to claim high wage rate Changes in government policy the government decides to expand the public sector → increase the wage rate Raising the national minimum wage → increase the wage rate Government policies on immigration make it easier for foreign people to live and work in the country and should increase the supply of labour The introduction of government anti-discrimination laws may help to increase the career prospects and wages of disadvantaged groups Advances in technology → reduce the demand for labour → decrease in wage rates Changes in public opinion Over time, how occupations and those who undertake them are viewed can change ex: the pay and job opportunities for women is increasing in Saudi Arabia where social attitudes about women working are changing. Royal Institution 9 Changes in the earnings of individuals over time getting older → having greater skills and productivity → higher wage rate bearing more responsibility → higher wage rate The extent to which earnings change The magnitude of the change in the wage rate due to a change in demand for, or supply of, labour is influenced by the elasticity of demand for labour and the elasticity of supply of labour The main determinants of elasticity of demand for labour 1) the proportion of labour costs in total costs labour costs form a large proportion of total costs → elastic labour demand labour costs form a small proportion of total costs → inelastic labour demand 2) The ease with which labour can be substituted by capital easy to replace workers with machines → elastic labour demand difficult to to replace workers with machines → elastic labour demand 3) The elasticity of demand for the product produced The more elastic the demand for the product → elastic labour demand The more inelastic the demand for the product → inelastic labour demand 4) The time period taking more time for firms to change their methods of production → elastic labour demand taking less time for firms to change their methods of production → inelastic labour demand The main determinants of elasticity of supply for labour 1) The qualifications and skills required more qualifications and skills needed → inelastic supply of labour fewer qualifications and skills needed → elastic supply of labour 2) The length of the training period A long period of training → inelastic supply of labour A short period of training → elastic supply of labour 3) The level of employment most workers are employed already → inelastic supply of labour Royal Institution 10 4) The mobility of labour having more geographical and occupational mobility → elastic supply of labour having less geographical and occupational mobility → inelastic supply of labour 5) The degree of vocation(a strong feeling of suitability for a particular career or occupation) stronger the attachment of workers to their jobs → inelastic supply of labour 6) The time period As with demand, supply of labour tends to become more elastic over time Royal Institution
