Wages set by labour demand and supply
The demand for labour is a DERIVED demand — it depends on demand for the goods workers help produce. Firms hire until the wage equals the value of a worker's extra output. The supply of labour depends on the wage offered, the number of skilled people available, and non-monetary factors like conditions and security. The equilibrium wage is where labour demand equals supply; if demand rises or supply falls, the wage rises.
Why wages differ across occupations
Wages differ across occupations because of: (1) skill and training — long training or rare skills mean lower supply, so higher wages; (2) productivity — more productive workers earn more; (3) risk or poor conditions — a compensating differential; (4) union bargaining power — unions push wages above the market rate; (5) discrimination despite equal productivity. Develop two or three of these, not all five.
National minimum wage effects
A national minimum wage (NMW) is a legal floor employers may not pay below. Set ABOVE the equilibrium wage, the quantity of labour demanded falls and the quantity supplied rises, creating a surplus — potential unemployment. But the effect depends on how far above equilibrium it is, how elastic labour demand is, and whether higher motivation offsets the cost. Under monopsony (a single dominant employer) an NMW can even raise employment.
Drawn from real examiner reports.
List of union pros and cons, no chains
Weaker candidates list trade union advantages and disadvantages without linking each to wages, employment or the data. The mark scheme rewards developed chains — e.g. "a union wins a wage rise, so workers' purchasing power rises, so consumer spending and demand for firms' goods may rise." Noting only that unions "raise wages" scores at Level 1.
Observed in November 2024 Paper 1 Q2(g) — examiner noted candidates often listed points rather than developing arguments and using evidence from the extract.
Use the data, do not copy it
Some candidates reproduce the extract almost word-for-word instead of using the data to build an argument: "simply copying the extract will not lead to high marks." Application (AO2) marks require connecting a figure to an economic mechanism, not repeating it. Quote a figure only to drive a step of reasoning towards an effect.
Flagged explicitly in the November 2024 Paper 1 examiner summary as a cross-topic issue affecting Q2(g) and Q3(d).
Higher wage moves along, not shifts
Students invert the diagram: "a higher wage shifts demand for labour to the right." It does not — a wage change moves ALONG the labour demand curve (a higher wage means firms demand LESS labour). The curve SHIFTS only when product demand, technology or productivity changes. Labour supply shifts with population, training or migration — not the wage.
Paraphrased from June 2024 Paper 1R Q1(d) feedback — candidates sometimes confused the factors shifting supply of labour with a change in the wage rate itself.
Union wage gains cost some jobs
Focusing only on the pay rise from union bargaining misses the employment cost. Higher union wages sit above the free-market rate, so firms move up the labour demand curve and the quantity of labour demanded FALLS — some jobs are lost. A balanced answer weighs the wage gain for those still employed against reduced employment and higher costs for firms.
NMW only bites above equilibrium
A minimum wage does not automatically cause unemployment. It only creates a labour surplus if it is set ABOVE the equilibrium wage; at or below equilibrium it has no effect. And under monopsony — one dominant employer paying below the competitive wage — a minimum wage can actually RAISE employment. Always check where the wage floor sits relative to equilibrium.
Geographical vs occupational mobility
These two are different. Geographical mobility is the ability to MOVE LOCATION for work (barriers: housing costs, family ties). Occupational mobility is the ability to SWITCH JOB TYPE (barriers: skills mismatch, retraining, licensing). Low mobility of either kind creates local wage differentials and regional unemployment even when the national market looks balanced.
Assess and Evaluate: develop both sides
For a 12-mark Assess or Evaluate: define the mechanism, apply a stimulus figure to an effect, analyse the chain, then counter-argue why it may be offset. EVALUATE needs a supported judgement on which side is stronger; ASSESS needs balanced analysis but NOT a judgement.
Analyse: one side, apply the figure
Analyse carries no AO4 (evaluation) marks, so build two or three sustained chains on ONE side only — cause, effect, further effect — and apply a data figure at each step rather than copying it. Save the two-sided balance and judgement for Assess and Evaluate.
Give exactly what is asked
When a question asks for ONE factor (e.g. one factor affecting labour supply), give exactly one and, if the marks allow, develop it. Listing several when only one is asked earns no extra marks and wastes time you need for the longer questions.
Label the labour-market diagram
For a labour-market diagram, put wage on the vertical axis and quantity of labour on the horizontal, demand sloping down and supply up, crossing at equilibrium. For a minimum wage, draw the floor ABOVE equilibrium and mark Qd, Qs and the surplus. Refer to it in your answer.
The demand for labour (DL) is a derived demand — firms want workers not for their own sake but to produce goods and services that consumers want. DL slopes downward: as the wage rate rises, firms hire fewer workers (each worker must now generate more value to be worth employing).
Factors that shift DL to the right (more workers demanded at every wage):
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