Labour markets: exam-style questions
Written in the style of A-level papers. 42 marks. Work on screen and open the answers as you go, or print a copy.
Section A: multiple choice
1Which of these would shift the demand curve for bus drivers to the right? [1]
- A rise in the wage rate of bus drivers
- A rise in the number of bus passengers
- A rise in the number of qualified drivers
- A fall in the cost of driverless buses
Answer
B. The demand for drivers is derived from the demand for bus journeys, so more passengers means more drivers wanted at every wage. A wage change is a movement along the curve, more qualified drivers shifts supply, and cheaper driverless buses are a substitute that shifts demand left.
2The wage rate rises by 8% and the number of workers employed falls by 2%. The wage elasticity of demand for labour is: [1]
- −4.0, so demand is elastic
- −0.25, so demand is inelastic
- −0.25, so demand is elastic
- −4.0, so demand is inelastic
Answer
B. −2% ÷ 8% = −0.25. Less than 1 in size, so the quantity of labour demanded responds by proportionately less than the wage.
3The demand for labour in an industry is likely to be more wage elastic when: [1]
- labour is a small share of total costs
- demand for the product is price inelastic
- workers can easily be replaced by machines
- firms have little time to adjust
Answer
C. If machines are a close substitute, a wage rise leads firms to swap workers for machines, so the quantity of labour demanded falls a lot. The other three all make demand less elastic.
4In a competitive labour market, 500 workers are employed at the equilibrium wage. A minimum wage is set above it: firms now want 460 workers and 540 people want to work. How many existing jobs are lost? [1]
- 40
- 80
- 460
- 540
Answer
A. Jobs lost are the fall in employment, 500 − 460 = 40. The 80 is the excess supply (540 − 460), which also counts 40 people drawn in by the higher wage who did not have these jobs before.
5A cut in the rate of income tax is most likely to reduce the hours a person works if: [1]
- the substitution effect outweighs the income effect
- the income effect outweighs the substitution effect
- the cut raises their take-home pay per hour
- they are paid the National Minimum Wage
Answer
B. The tax cut raises the net wage. The substitution effect makes leisure dearer, so more hours; the income effect means they can reach the same income with fewer hours. Hours fall only if the income effect is stronger.
Section B: data and short answer
The table shows the demand for and supply of warehouse workers in a region. The labour market is competitive.
| Wage rate, £ per hour | Workers demanded (thousands) | Workers supplied (thousands) |
|---|---|---|
| 11 | 70 | 30 |
| 12 | 60 | 40 |
| 13 | 50 | 50 |
| 14 | 40 | 60 |
| 15 | 30 | 70 |
6Identify the equilibrium wage rate and the number of workers employed. [2]
Mark guidance
- £13 per hour (1 mark)
- 50,000 workers (1 mark)
7A minimum wage of £14 per hour is introduced. Calculate the number employed, the number of existing jobs lost and the excess supply of labour. [3]
Mark guidance
- Employment is set by demand: 40,000 workers (1 mark)
- Existing jobs lost: 50,000 − 40,000 = 10,000 (1 mark)
- Excess supply: 60,000 − 40,000 = 20,000, which includes 10,000 people drawn in by the higher wage (1 mark)
8Calculate the change in the total hourly wage bill for warehouse workers after the minimum wage is introduced. [2]
Mark guidance
- Before: £13 × 50,000 = £650,000 an hour; after: £14 × 40,000 = £560,000 an hour (1 mark)
- The wage bill falls by £90,000 an hour, because demand for these workers is wage elastic (1 mark)
9Online orders rise sharply. Draw a labour market diagram to show the effect on the wage rate and employment of warehouse workers. [4]
Mark guidance
- Axes labelled wage rate and quantity of labour, with D1, S, W1 and Q1 (1 mark)
- Demand for labour shifts right from D1 to D2, because it is derived from the demand for deliveries (1 mark)
- Supply curve unchanged (1 mark)
- Higher wage W2 and higher employment Q2 shown (1 mark)
10Explain two reasons why airline pilots are paid more than airport baggage handlers. [4]
Mark guidance
- Supply: pilots need long, expensive training and licences (1 mark), so few people can do the job and supply is low and inelastic (1 mark)
- Demand: each pilot is essential to a flight that earns a lot of revenue and there is no substitute (1 mark), so airlines will pay a high wage; baggage handling is easier to staff and partly done by machines (1 mark)
11A warehouse brings in robots that cut the labour hours needed per parcel by 20%. The number of parcels it handles rises by 10%. Calculate the percentage change in total labour hours. [2]
Mark guidance
- Hours become 0.8 × 1.1 = 0.88 of the original (1 mark)
- Total labour hours fall by 12% (1 mark)
Section C: extended answer
12Evaluate whether a large rise in the National Minimum Wage would benefit low-paid workers. [20]
Mark guidance
A typical split is knowledge 6, application and analysis 6, evaluation 8; check your own board’s scheme.
Analysis could include
- A minimum wage set above the equilibrium wage raises the hourly pay of workers who keep their jobs and their hours
- In a competitive labour market the quantity of labour demanded contracts and supply extends, so employment falls and there is excess supply
- Existing jobs lost (Qe − QD) are smaller than the excess supply (QS − QD), because the higher wage also draws new people in
- Firms may cut hours, training or recruitment, or raise prices, so some low-paid workers lose out
Evaluation could include
- The effect on jobs depends on the wage elasticity of demand for labour: inelastic where labour is a small share of costs and hard to replace
- Where an employer has wage-setting power, a well-set floor can raise both pay and employment
- Higher pay can raise morale and productivity and cut staff turnover, offsetting part of the cost
- Hourly pay is not household income: hours, benefits withdrawn as pay rises and other earners matter
- It depends on the size of the rise relative to typical pay in each region and industry, and on the state of the economy
Levels
Top band: a range of points developed in full chains of reasoning, applied to the context, with judgements that are weighed and supported ("it depends on..."). Middle band: some developed chains but evaluation is one-sided or asserted. Bottom band: points listed or described without chains, little or no evaluation.