How these reasons influence the wages of workers, depending on economic sector workers operate in: primary/secondary/tertiary

Published by Patrick Mutisya · 14 days ago

IGCSE Economics 0455 – Workers and Wage Determination

Microeconomic Decision‑Makers: Workers

Learning Objective

Explain how the main reasons that influence workers’ wages vary according to the economic sector in which they are employed – primary, secondary or tertiary.

Key Reasons that Influence Wages

  • Productivity of labour – higher output per worker tends to raise wages.

  • Skill level and education – specialised skills command higher pay.

  • Scarcity of labour – if few workers possess a particular skill, wages rise.

  • Unionisation and collective bargaining – can push wages above market‑determined levels.

  • Demand for the product or service – sectors with high demand often pay more to attract staff.

  • Cost of living and regional differentials – wages may be adjusted for location.

  • Regulatory environment – minimum wage laws, health‑and‑safety standards, etc.

How These Reasons Operate in Different Sectors

SectorTypical Wage‑Determining FactorsTypical Wage Level (Relative)
Primary (Agriculture, Mining, Fishing)

  • Physical labour intensity → lower skill premium.

  • Seasonal demand → wages fluctuate with commodity prices.

  • Scarcity of specialised roles (e.g., drill operators) can raise wages locally.

  • Often low union density.

Generally low to moderate
Secondary (Manufacturing, Construction, Utilities)

  • Productivity linked to technology and capital intensity.

  • Skill levels vary – from unskilled assembly line workers to highly skilled engineers.

  • Union presence stronger in some manufacturing sub‑sectors.

  • Demand for finished goods influences wage pressure.

Moderate; skilled workers earn considerably more
Tertiary (Services: Retail, Finance, Health, Education, IT)

  • High reliance on human capital – education and professional qualifications are crucial.

  • Strong demand for specialised services (e.g., finance, IT) drives higher wages.

  • Unionisation varies widely; professional bodies often set standards.

  • Productivity measured in output per employee or value added.

Generally the highest, especially for highly qualified professionals

Economic Theory Behind Wage Determination

The marginal productivity theory states that a competitive firm will pay a worker a wage equal to the value of the worker’s marginal product of labour (MPL):

\$\$

\text{Wage} = \text{MPL} \times P

\$\$

where P is the price of the output produced. Differences in MPL across sectors arise from variations in technology, capital intensity and skill requirements, which help explain the sectoral wage patterns shown above.

Sector‑Specific Examples

  1. Primary – Coffee Farming: A smallholder’s labour is often paid at or near the minimum wage because the MPL is low and the product (raw coffee beans) has a relatively low price. Seasonal price spikes may temporarily raise wages.

  2. Secondary – Automotive Assembly: Unskilled line workers earn a base wage, but those with expertise in robotics or quality control receive higher pay due to higher MPL and scarcity of skills.

  3. Tertiary – Software Development: High MPL because a single programmer can create a product that sells for millions. The scarcity of qualified developers pushes wages well above the average for other sectors.

Implications for Policy and Career Choices

  • Governments may target training programmes to sectors where skill shortages keep wages low (e.g., primary sector).

  • Students can increase future earnings by acquiring skills that are scarce in high‑value sectors, such as ICT or finance.

  • Understanding sectoral wage drivers helps workers negotiate better contracts and informs career planning.

Suggested diagram: Supply and demand curves for labour in each sector, illustrating how shifts in MPL or labour scarcity affect equilibrium wages.