Microeconomic Decision Makers · 4 question types
Past paper frequency (2018 to 2024)
This topic accounts for approximately 8% of your exam marks.
Wage determinants, minimum wage effects, and trade union impact appear regularly in Section B; typically 6 to 10 marks.
A wage differential is the difference in pay between workers in different jobs, or between workers with different characteristics in similar jobs.
Different occupations earn different wages, and different workers in the same occupation are paid differently, for several reasons.
Jobs with long training periods have a small supply of qualified workers; if demand for that labour is also strong, the equilibrium wage is high. A doctor needs roughly a decade of training, a checkout assistant a few days, so the doctor's labour supply is small and the wage high. Differences also follow the economic sector (primary, secondary or tertiary) and whether the worker is in the public or private sector.
Workers represented by a strong trade union or professional body can negotiate pay above the free-market level. Doctors, airline pilots and lawyers earn more partly because their professional bodies restrict the supply of new entrants. Workers with no collective representation have weaker bargaining power and accept lower pay.
Dangerous, unpleasant, anti-social or remote jobs must pay extra to attract anyone at all (offshore oil-rig workers, night-shift nurses, deep-sea trawler crews). The extra pay is the .
Wage differences are not always economically justified. Discrimination on the basis of gender, age, ethnicity or disability can produce pay gaps unrelated to productivity. Government policy, such as a national minimum wage or equal-pay legislation, also shapes wages, especially for the lowest-paid.
Analyse why one occupation earns more than another (6 marks)
What comes up: A 6-mark question presenting two occupations and asking why one is paid more. The same points work whichever way round the comparison is framed.
Write: Link each factor to its wage effect: (1) Qualifications and training — long training restricts the number of suitable candidates, so the smaller supply of labour raises the equilibrium wage. (2) Productivity / value of output — a worker who generates more revenue per hour is in higher demand by firms, so the wage rises. (3) Bargaining strength — workers in a strong union or professional body negotiate wages above the free-market level; workers with none accept lower pay.
Watch out: "Banks make more profit than restaurants" does not explain why a particular worker earns more and is not credited unless you connect it to the demand for, or supply of, that type of labour. Always root the answer in demand for or supply of labour, not firm profitability alone.