Cambridge IGCSE Economics 0455
Syllabus points
- Explain the factors that determine wage differences.
- Explain why some occupations are paid more than others.
- Explain how earnings change over a person's life.
Why wages differ
Wages are a price for labour, set by the demand for and supply of workers in each occupation. Wages are higher where demand is high relative to supply.
- Demand for labour is high when workers are very productive and when the good they produce sells for a high price (labour is a *derived demand*).
- Supply of labour is low when a job needs rare skills, long training or qualifications, or is dangerous or unpleasant.
High demand + low supply → high wages. Low demand + high supply → low wages.
Key definitions
| Term | Definition |
|---|---|
| Wage | The payment a worker receives for their labour. |
| Derived demand | Demand for labour that comes from demand for the good it produces. |
| Skilled labour | Workers with training and qualifications, usually in shorter supply. |
Factors affecting wage differences
- Skills and qualifications — skilled, well-trained workers are scarcer and paid more.
- Danger and unpleasantness — some risky jobs pay more to attract workers.
- Productivity — more productive workers add more to output.
- Trade unions — can bargain for higher pay (topic 3.4).
- Government — a minimum wage lifts the lowest pay.
- Discrimination — can unfairly lower some groups' pay.
Earnings over a lifetime
Earnings usually rise with age and experience as workers gain skills, then may fall near retirement. A skilled professional typically earns more over their life than an unskilled worker.
Worked example
A surgeon earns far more than a cleaner. The surgeon's job needs many years of training and rare skills, so supply is very limited, while the value of their work is high, so demand is high — both push wages up. Cleaning needs little training, so supply is large and wages are low.
Common exam mistakes
- Forgetting labour is a *derived* demand.
- Explaining wages only by supply (skills) and ignoring demand (productivity, value of output).
Exam technique
Always explain wage differences using both demand and supply of labour, then add specific factors (skills, danger, unions).
Quick revision
- Wages set by demand for and supply of labour.
- High skill/training → low supply → higher pay.
- Labour demand is derived from demand for the product.