How these reasons influence the wages of workers, depending on discrimination between workers, e.g. male/female

Cambridge IGCSE Economics 0455 – Micro‑economic Decision‑Makers: Workers

1. Quick Review of Syllabus Coverage (Action‑oriented)

Syllabus RequirementCurrent CoverageTargeted Improvement
3.3 Workers – overall (3.3.1‑3.3.5)Only 3.3.2‑3.3.4 are reasonably covered.Fully develop 3.3.1 (occupational choice) and 3.3.5 (policy measures); deepen 3.3.2‑3.3.4 with diagrams and extra numeric examples.
3.3.1 Factors affecting an individual’s choice of occupation (wage + non‑wage)Non‑wage factors listed briefly; link to opportunity cost weak.Explain real‑wage opportunity cost, group non‑wage influences under clear headings, give a short numeric illustration.
3.3.2 Wage determination – demand & supply, trade‑union power, NMWSupply‑demand described; unions & NMW only mentioned.Provide a labelled diagram showing (i) competitive labour‑demand & supply, (ii) union‑wage‑setting line, (iii) minimum‑wage floor; add exam‑style caption.
3.3.3 Labour‑market equilibrium – surplus, shortage, wage‑floor effectsImplicit only.Insert a concise subsection defining equilibrium and the three possible scenarios with a one‑line table and diagram prompts.
3.3.4 Discrimination – gender, race, age and its effect on wagesGood narrative but no explicit demand/supply shift link; only one numeric example.State clearly that discrimination is modelled as a left‑ward shift of demand or supply; add a second numeric example (racial discrimination).
3.3.5 Policy measures to reduce wage inequalityListed but not linked to each type of discrimination.Match each policy to the specific form of discrimination it targets; give a brief explanation of the mechanism.

2. 3.3.1 Factors Influencing an Individual’s Choice of Occupation

Workers decide what job to take, where to work and how many hours to supply. Their decision is shaped by both wage‑related and non‑wage considerations.

2.1 Wage‑related factors (Opportunity‑cost perspective)

  • Real wage level – a higher real wage raises the opportunity cost of leisure; workers are willing to give up more leisure for work.

  • Wage differentials between occupations – workers move to sectors where the marginal return to their skills is higher.

  • Expected future earnings – promotion prospects, career ladders and the possibility of skill‑specific pay rises.

  • Job security – a stable, predictable wage may outweigh a slightly higher but insecure pay.

2.2 Non‑wage factors (Grouped for clarity)

CategoryFactorsWhy they matter
Job‑relatedWorking conditions, health & safety, physical strain, status/prestigeImpact on well‑being and personal satisfaction.
Personal / FamilyLocation & commuting costs, flexible hours, caring responsibilities, work‑life balanceDetermine whether a job fits an individual’s lifestyle.
Cultural / ReligiousReligious observances, cultural expectations, gender‑role normsCan restrict the range of acceptable occupations.
DevelopmentalOpportunities for training, skill acquisition, career progressionIncrease future earning potential (human‑capital investment).

2.3 Numeric illustration of opportunity cost

Assume a student can either work for £8 / hour or enjoy 4 hours of leisure. If a new job pays £12 / hour, the extra £4 represents the additional amount the student is willing to give up in leisure (4 hours × £4 = £16) to obtain the higher wage.

3. 3.3.2 Wage Determination

3.2.1 The basic competitive labour‑market model

In a perfectly competitive market the wage (W) is the price of labour.

  • Labour demand derives from the marginal product of labour (MPL). Firms hire up to the point where MPL = W.

  • Labour supply reflects workers’ trade‑off between leisure and income. Workers supply labour up to the point where the real wage equals their marginal rate of substitution between leisure and income.

Equilibrium wage (W*) and quantity of labour (L*) occur where the two curves intersect.

3.2.2 Effect of Trade‑Unions

  • Unions negotiate a wage‑setting line (WU) that lies above the competitive demand curve.

  • Result: a union‑wage (WU) > W* and a labour surplus (unemployment) equal to the horizontal distance between the supply curve and the demand curve at WU.

  • Graphically this is shown by a horizontal line at WU intersecting the supply curve; the area between the demand curve and the line represents the surplus.

3.2.3 National Minimum Wage (NMW)

  • Statutory floor: W ≥ Wmin.

  • If Wmin is set above the competitive equilibrium, a labour surplus (unemployment) appears; if set below, it has no effect.

  • In diagram form it is a horizontal line at Wmin on the wage axis.

3.2.4 Combined Diagram (to be drawn by students)

  1. Draw the competitive labour‑demand curve (derived from MPL) and the labour‑supply curve; label the intersection as (W*, L*).

  2. Add a horizontal union‑wage‑setting line (WU) above W*; shade the area between the demand curve and the line as “union‑induced surplus”.

  3. Draw a second horizontal line for the minimum‑wage floor (Wmin) and indicate the surplus created when Wmin > W*.

  4. Caption (exam‑style): “Explain how a strong union or a statutory minimum wage set above the competitive equilibrium creates a labour surplus (unemployment).”

3.2.5 Illustrative wage‑determination equation

W = α + β·HC + γ·Experience + δ·Union Membership + ε

  • HC = human‑capital index (education + training).

  • Union Membership = 1 if member, 0 otherwise (captures bargaining power).

  • ε = other factors (e.g., discrimination, regional differentials).

4. 3.3.3 Labour‑Market Equilibrium, Surplus & Shortage

ScenarioWage PositionResulting Labour‑Market Condition
Wage = Equilibrium (W*)Intersection of supply & demandFull employment – no surplus or shortage.
Wage > Equilibrium (e.g., due to strong union or NMW)Above the demand curveLabour surplus (unemployment) – quantity supplied > quantity demanded.
Wage < EquilibriumBelow the supply curveLabour shortage – firms want more workers than are willing to work at that wage.

Diagram prompts (students should sketch)

  • Figure A – Competitive equilibrium (single intersection).

  • Figure B – Wage set above equilibrium (horizontal line) showing surplus.

  • Figure C – Wage set below equilibrium showing shortage (shaded area between supply and demand).

5. 3.3.4 Discrimination and Its Effect on Wages

5.1 Economic modelling of discrimination

  • Demand‑side discrimination: Employers perceive a group as less productive → labour‑demand curve for that group shifts left (lower wage for any given quantity).

  • Supply‑side discrimination: Social or cultural barriers discourage a group from entering certain occupations → labour‑supply curve for that group shifts left (higher wage needed to attract them).

5.2 Gender discrimination – Numerical example

GroupSkill levelExperience (years)Observed wage (£/hr)Expected wage (no discrimination) (£/hr)Wage gap (£/hr)
MaleHigh515.0015.000.00
FemaleHigh513.5015.001.50

Diagram description: Two labour‑demand curves – DM (male) and DF (female). DF lies to the left of DM, giving a lower equilibrium wage (WF) and a possible surplus of female labour.

5.3 Racial discrimination – Numerical example

GroupSkill levelExperience (years)Observed wage (£/hr)Expected wage (no discrimination) (£/hr)Wage gap (£/hr)
WhiteMedium412.0012.000.00
BlackMedium410.2012.001.80

Here the demand curve for Black workers (DB) is shifted left because employers undervalue their productivity, leading to a lower wage (WB) despite identical skills.

5.4 Age discrimination (brief)

  • Older workers may be seen as less adaptable → left‑ward shift of demand, lower wages.

  • Younger workers may be over‑demanded for entry‑level roles → right‑ward shift of demand, potentially higher entry wages but limited career progression.

6. 3.3.5 Policy Measures to Reduce Wage Inequality

PolicyTargeted discriminationHow it works
Equal‑Pay LegislationGender, race (pay for equal work)Mandates “equal pay for equal work”; provides legal recourse for victims.
Pay‑Transparency RequirementsAll forms (gender, race, age)Firms must publish wage data by demographic group, exposing unjustified gaps and creating pressure to close them.
Anti‑Discrimination TrainingGender, race, age (unconscious bias)Educates hiring managers and staff, reducing biased decision‑making in recruitment, promotion and pay setting.
Work‑Life‑Balance Support (e.g., paid parental leave, flexible hours)Gender – career‑break penalty for womenReduces loss of experience and seniority for parents, narrowing the gender wage gap.
Affirmative Action / Positive Action SchemesGender, ethnic minoritiesSet targets or provide incentives for employers to recruit, train and promote under‑represented groups.
Skills‑Development Grants & ApprenticeshipsAll groups – especially those facing supply‑side discriminationIncrease human capital of disadvantaged groups, shifting their supply curve rightward (more workers willing to work at a given wage).

7. Illustrative Diagram Descriptions (to be drawn by students)

  • Figure 1 – Competitive Labour‑Demand & Labour‑Supply: Two intersecting curves labelled “Labour‑Demand (MPL)” and “Labour‑Supply”. Intersection gives equilibrium wage (W*) and quantity (L*).

  • Figure 2 – Union‑Wage‑Setting: Same demand curve, a horizontal line at WU above W*. Shade the area between the demand curve and the line as “union‑induced surplus”.

  • Figure 3 – Minimum‑Wage Floor: Add a horizontal line at Wmin above W*. Show the surplus created (shaded) and label it “unemployment due to minimum‑wage floor”.

  • Figure 4 – Discrimination Effect (Gender): Two demand curves – DM (male) and DF (female) with DF left of DM. Mark the lower equilibrium wage for females (WF) and indicate possible surplus of female labour.

  • Figure 5 – Discrimination Effect (Racial): Similar to Figure 4 but using DW (white) and DB (Black) curves.

8. Summary Checklist for IGCSE Examination

  • List all wage‑determining factors: productivity (MPL), human capital, labour‑market conditions, union power, NMW.

  • Explain non‑wage influences on occupational choice and link them to opportunity cost.

  • Draw and label the supply‑and‑demand diagram, then add:

    • Union‑wage‑setting line and its surplus.

    • Minimum‑wage floor and its effect.

  • Define labour‑market equilibrium and describe the three possible outcomes (equilibrium, surplus, shortage) with a brief diagram.

  • Show how discrimination shifts either demand or supply, using at least two numeric examples (gender and race).

  • Recall three policy measures, match each to the specific discrimination it tackles, and briefly state the mechanism (e.g., legal enforcement, transparency, skill development).