Choosing a job, wage differences and trade unions

Last time

Before we start: last time, in The mixed economy, you learned these points. Here they are again on one card. Keep them in mind, because today builds on them.

Why do some jobs pay more?

A surgeon may earn many times what a cleaner earns, though both work hard. Why? In this lesson: how people choose a job, how wages are set in the labour market, why they differ, and how trade unions push them up.

Choosing a job: the wage

The most obvious reason to choose a job is the pay: the wage or salary, and extras such as overtime, bonuses and commission. A higher wage makes a job more attractive, so it draws more workers. But the wage is only part of the choice. Many people take a lower-paid job they prefer.

Choosing a job: everything else

Non-wage factors include job security, working hours, holidays, working conditions, and chances of training and promotion. Fringe benefits, such as a pension, free transport, or health insurance, and the location of the job matter too. And job satisfaction. Some people accept hard conditions, like working outside in great heat, because the pay is high or there is no other work available.

How wages are set

In a free labour market, the wage is the price of labour. It is set by the demand for labour from employers and the supply of labour from workers. Demand for labour depends on how productive workers are and how much the product they make is in demand. Supply of labour depends on how many people have the skills, how attractive the job is, and how long the training takes.

The wage on a diagram

The demand for labour slopes down and the supply slopes up. Where they cross, the equilibrium wage here is 5 dollars an hour, with 5 hundred workers employed. A rise in demand for labour, or a fall in supply, raises the wage.

Why some workers earn more

High skills and long training mean few people can do the job, so supply is low and the wage is high. Surgeons and pilots are examples. High productivity, and high demand for what the workers make, raise demand for labour and so wages. Dangerous or unpleasant jobs pay more to attract workers. And a strong trade union can push wages up.

Why cleaners earn a low wage

Cleaning needs few skills or qualifications, so many people can do it. The supply of labour is large. The value of what one cleaner produces is low compared with a skilled worker, so demand for their labour is limited. Cleaners often have little bargaining power: few are in trade unions, and they can easily be replaced.

Wage differences in one table

Here are the main causes side by side: each one pushes the wage up or down.

Other wage differences

Skilled workers usually earn more than unskilled ones, and workers in the tertiary sector often more than those in the primary sector. Public and private sector pay can differ, and wages are often higher in cities, where living costs are higher too. Men are often paid more than women for similar work, which can be due to discrimination or to career breaks.

Trade unions

A trade union is an organisation of workers that protects and promotes its members' interests. It bargains with employers on behalf of all its members. This is collective bargaining, over wages, working hours, conditions and job security. It may also give legal advice, training and support to members who are treated unfairly.

What makes a union strong

A union is stronger when most workers in the industry are members, and when their skills are hard to replace. It is stronger when the firm is profitable and the economy is doing well, so the employer can afford a rise. If talks fail, it can take industrial action: a strike, a work-to-rule, or an overtime ban.

Unions: good or bad?

For workers: higher wages, better conditions and safer jobs. For firms: unions can help communication with workers. But higher wages raise costs, and strikes stop production. For the economy: wage rises above productivity can cause unemployment or inflation.

Mistakes that lose marks

Mistake one: explaining wage differences only by saying some jobs are harder. Use demand, supply and skills. Mistake two: listing non-wage factors when the question asks why a wage is low. Mistake three: describing a strike without linking it to bargaining power and wages. The fix: link every cause to demand for or supply of labour.

The full-marks tip

The full-marks tip: explain wage differences with demand for and supply of labour: skills, training, productivity. For unions, say how they raise bargaining power, then the effect on wages.

On one card

So, on one card: wages and trade unions. Keep it for revision.