UNIT 3 – MICROECONOMIC DECISION MAKERS

CHAPTER 3.3 – WORKERS

Influences on an individual's choice of occupation
Most people work at some point in their lives. An individual's choice of occupation depends
on many factors, which can be categorised as wage and non-wage factors.
Wage factors affecting choice of occupation
The level of salary or wage that a person receives in return for their labour is a major
influence on their choice of occupation.
An important influence on what jobs a person decides to do, is the pay on offer. The total pay
a person receives is known as his earnings. An important consideration in choosing a career is
the wages paid. For example, doctors and accountants usually earn more than electricians and
drivers.
In addition to the basic wage, earnings may also include overtime pay, bonuses and
commission.
1. Wages
Generally, the higher the wage rate on offer, the more attractive the job. For instance,
a person would expect to be paid more as a doctor than as a cleaner.
A salary can be defined as a payment made on monthly basis, calculated on the basis
of a fixed annual rate, irrespective of the number of hours actually worked. In
contrast, a wage may be a payment weekly, based on the number of hours worked in a
week.
Wages are payments for carrying out the works. The higher the wage, the more
attractive the job may seem. However, highly paid jobs typically require a lot of
training and skill development, which can reduce the supply of qualified applicants.
Some dangerous jobs – for example, working on an offshore oil ring – will attract
applicants only if the wages are relatively high.
In choosing an occupation, a potential employee will usually consider the following:
1. Time rate: This focuses on the rate of pay per hour worked, so the more the
hours the more the pay to be received. That is, pay, according to
number of hours for which they work is called as time rate system.
2. Piece rate: This is paid to an employee of a firm per unit of output produced.
Piece rates are often paid in addition to time rates to workers in manufacturing
firms to give them the incentive to increase their productivity. That is, pay,
according to the amount they produce is called piece rate system.
3. Basic Pay is the amount of money that will be received by an employee before
any increments or deductions are made.
2. Overtime pay
Overtime is the hours worked in addition to the basic contracted hours. It is usually
paid at a higher rate compared to the normal hours. The purpose of giving overtime
pay is to encourage people to work ‘unsocial’ hours.
 3. Bonuses
A Bonus is used as an incentive to encourage workers to work harder or longer, for
example, to meet a particular sales or production target.
It can be paid to workers who produce above a standard amount, finish a project
ahead of time, secure a profitable contract or contribute to higher profits in some other
way. It can provide an incentive for workers to produce both a high and a good
quality output and to stay with a firm.
Resentment may be caused if it is thought that they are awarded unfairly. This
resentment can lead to those workers, who do not receive a bonus, becoming
demotivated. As a result, the quantity or quality of their output may fall and some
workers may resign.
4. Commission
Commission is a payment made as a percentage of sales that a salesperson makes.
This will encourage the salesperson to be enthusiastic about selling more. Sometimes,
this is an addition to a standard wage and sometimes it makes up their total payment.
Non-wage factors
Non-wage factors are also a major influence on an individual's choice of occupation, as a
person may be motivated by money in the short term but in the long term, they will also want
to feel happy and motivated at work. Non-wage factors that influence an individual's choice
of occupation include the following:
1. Level of challenge
Does the job require thinking skills or is it repetitive and boring?
2. Career prospects
Will there be progression within the firm or will a person have to change jobs to be
promoted? Many people want to work in occupations where there is opportunity for
promotion.
3. Level of danger involved (job security)
Is the job dangerous? For example, some people face a high degree of risk at work,
such as lifeboat rescue teams, fire fighters, window cleaners and scaffold erectors.
Most people want to be sure that the job they choose to do will be secured and that
they will not be laid off.
4. The length of training required
Some jobs require few skills, such as cleaners and shop assistants. By contrast, other
jobs require years of training, such as electrical engineers, plastic surgeons, pilots,
accountants, lawyers and demists.
5. The level of education required
Some jobs require no or minimal education whereas other jobs require post-graduate
levels of education (such as university professors).
6. Recognition in the job
Does the worker get praise and recognition for their performance at work? If a worker
feels respected at work, they may be motivated to work harder.
 7. Personal satisfaction gained from the job
This is important because if a worker feels satisfied and happy in their work, they may
work harder and stay in the job longer. Voluntary work might be carried out by people
who are happy to work for no pay, as the reward they get is the personal satisfaction
of working for a charity, such as taking care of the elderly or sick.
Many people are prepared to work for a lower pay if they enjoy the work. Some
people prefer to work for a company with regular income, while others prefer the
freedom of working for themselves.
8. The level of experience required
Some jobs require no or minimal experience whereas other jobs require a minimum
amount of experience (such as judges and law-makers).
9. Fringe benefits
These are non-financial incentives given to employees. For example: subsidised
housing, company car or subsidised transport, subsidised company products etc.
10. Length of holidays
Many countries have implemented labour laws requiring that the workers get a certain
number of days as holidays.
11. Travelling distance
Having to travel a long distance to attend to the work may make an individual seek
employment at a firm which is nearer to home, even if the firm which is nearer to
home pays a lower salary.

Wage determination
Wages are determined by the interaction for labour and the supply of workers in an industry.
1. The demand for labour
The demand for labour is a derived demand. This means that labour is demanded for
the goods and services it produces and not for itself. For example, bakers are
demanded for the bread they bake, not for the sake of hiring bakers.
 When the wage rate falls from W1 to W2, the number of workers employed increases
from N1 to N2. This is because firms can afford to hire more workers when the wage
rate is lower.
The factors that influence the demand for labour include:
● The level of total demand in the economy (aggregate demand).
● An increase in the productivity of labour.
● The cost of labour
2. National Minimum Wage (NMW)
A NMW is the lowest amount a firm can pay its workers, as set by the government.

The equilibrium wage rate before the NMW is W1 and N1 workers are demanded and
supplied. If the government introduces a NMW which is above the equilibrium wage
at W2 then the quantity of labour supplied to the market increases from N1 to N2 as
more workers are prepared to work for a higher wage rate.
However, the quantity of labour demanded falls from N1 to N3 because firms are less
able or willing to pay as many workers at a higher wage rate. As the quantity supplied
of labour is greater than the quantity demanded, there is a surplus of labour at a wage
rate of W2. Thus, if the NMW is set too high, this may lead to unemployment in the
economy.
3. Government interference
● Employment rights
● Trade union legislation
4. The supply of labour
The labour supply in an economy consists of people whoa re of working age and who
are willing and able to work. This does not include those who are in full-time
education or those who do not work by choice, such as housewives or househusbands.
 If the wage rate in an industry increases from W1 to W2 the number of workers
willing to work will increase from N1 to N2 because workers are attracted by higher
wages.

High wage rates will cause workers to work longer hours to increase their earnings up
to a certain point. As wage rate increase from W1 to W2 the number of hours worked
increases from H1 to H2. However, as wages increase from W2 to W3 the number of
hours worked falls from H2 to H3 because there is a trade-off between work and
leisure time. At W3 a person can work fewer hours yet have a higher income than at
W2. The backward-bending supply of the labour curve therefore occurs when
wage rates rise to a high enough point to allow people to work less and enjoy more
leisure hours.
5. Availability and level of welfare benefits
 Welfare benefits are paid to the unemployed. However, if welfare benefits are high
and rapidly available, this can discourage people from seeking employment because
the opportunity cost of not working and receiving welfare payments is too high.
6. Change in social climate
In many countries, more women are entering the workforce and delaying having
families while more men are looking after the home and children.
7. Geographical mobility
Some people may not be geographically mobile due to family commitments or high
costs of living.
8. Occupational mobility
The degree of occupational mobility depends on the cost and length of training
required to change profession.
Reasons for differences in earning
1. Differences in earning between skilled and unskilled workers
2. Differences between primary, secondary and tertiary sector workers
3. Differences between private and public sector workers
Division of labour and specialization
Specialisation of labour occurs when a worker becomes an expert in a particular profession.
Division of labour occurs when a production process or task is split between different
workers, who become experts in a part of the process.