REVIEW 3.5 REWARDS FOR LABOUR

WAGE- Paid weekly, per hour SALARY – Paid monthly, amount per year, divided into 12 equal parts GROSS AND NET INCOME GROSS- Before deductions NET- After deductions Deductions may include: income tax, national insurance, pension contributions and student loan repayments

Nominal and Real income: Nominal income is the income paid to labour unadjusted for the effects of inflation. Real income is what you can buy with the income. It’s adjusted by inflation.

How are wages determined? Wags are the prices of labour, any price is determined by supply and demand. Therefore wages are determined by the supply of labour and the demand for labour. (Graph from notes) The demand for labour is derived demand. Increase in demand = Higher wage rates. Higher supply for work Increase in supply = Lower wage rates Past paper questions: 2011 – Q3b (2)

Differences in wage rates REVIEW 3.6 Differences in wage rates

WHY ARE THERE DIFFERENCES? Differences in the productivity of workers The elasticity of supply, Inelastic = Higher wages, Elastic = Low wage Elasticity of demand Trade Union power Demand for the product that they are producing Government pay policy Compensating Regional costs of living Employer discrimination

Minimum Wage: FOR MMW goes up, wages go up Less spending needed on benefits Income is more fairly distributed Poverty is reduced

AGAINST Wages up, therefore costs up, less employment Other workers want to keep the differential pay – higher paid workers want more. Inflation will be created Young and unskilled workers will lose out Firms will cut back on investment Poverty wont be reduced Doesn’t take into account regional differences.

Past Paper Questions 2010 Q3 d (8) 2011 Q3 d (8) 2013 Q1 d (8)