Workers

Economics · Microeconomic decision-makers. The idea in plain words, the rules to remember, the mistake to avoid and a worked example, written and checked by Mega Lecture.

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The idea

People choose jobs for wage factors (basic pay, overtime, bonuses, commission) and non-wage factors (job security, hours, holidays, working conditions, promotion chances, job satisfaction, distance from home, fringe benefits).

The wage rate is the price of labour. In a free market it is set where the demand for labour equals the supply of labour. On the diagram, the wage rate is on the vertical axis and the quantity of labour on the horizontal axis.

Wages differ because demand and supply differ between jobs: skilled workers are in high demand and short supply. Trade unions, a national minimum wage, discrimination and public sector pay rules also change wages.

Rules to remember

Demand for labour comes from firms; supply of labour comes from workers
Demand for labour shifts right when demand for the product or workers' productivity rises: wage and employment both rise
Supply of labour shifts right when more people qualify for or want the job: wage falls and employment rises
National minimum wage above equilibrium: the wage rises, demand for labour contracts and supply extends, so there is a surplus of labour (unemployment)
A trade union is stronger when it has many members, the workers are skilled and hard to replace, and unemployment is low
Occupational mobility: ability to change to a different job (helped by education and training). Geographical mobility: ability to move to a job in another area (helped by affordable housing, transport and information)
Division of labour: each worker specialises in one task. Output per worker rises and training is quicker, but the work can be boring and one absence can stop production

Common mistake

Shifting the wrong curve. A change in demand for the product shifts the demand for labour; a change in the number of qualified or willing workers shifts the supply of labour.

Worked example

A government makes nurse training free, so many more people qualify as nurses. At the same time, an ageing population means hospitals need more nurses. What happens to the number of nurses employed and to their wage?

More qualified nurses: the supply of labour shifts right. This raises employment and pushes the wage down.
Hospitals need more nurses: the demand for labour shifts right. This raises employment and pushes the wage up.
Both shifts raise employment, but they pull the wage in opposite directions.
The wage rises only if demand increases by more than supply.

Answer: Employment of nurses definitely rises. The change in the wage is uncertain: it depends on which shift is larger.

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