Labour markets
50 marks: 12 multiple choice questions, a data response and an essay. Answers are at the end.
AQA: Question 14 would be a 25-mark question on your papers.
Edexcel: Question 14 would be a 25-mark question on your papers.
OCR: Question 14 would be a 25-mark question on your papers.
Multiple choice online
The test
1The demand for bricklayers is described as a derived demand because:
- A it rises when the wage rate falls
- B it depends on the demand for the houses they build
- C bricklayers can move between building firms
- D it is determined by the number of trained bricklayers
2A profit-maximising firm in a competitive labour market will hire an extra worker as long as:
- A the worker's output is greater than the average worker's output
- B the wage is below the price of the product
- C the firm's total revenue is rising
- D the worker's marginal revenue product is greater than the wage
3The demand for labour in an occupation is likely to be more wage inelastic when:
- A wages are a small proportion of the firm's total costs
- B the firm has plenty of time to adjust to a wage change
- C demand for the product is price elastic
- D the workers can easily be replaced by machinery
A firm sells its output at £10 a unit in a competitive market and pays each worker £100 a day. The table shows daily output with different numbers of workers.
| Workers | 3 | 4 | 5 | 6 | 7 |
|---|---|---|---|---|---|
| Total output (units a day) | 60 | 76 | 88 | 96 | 100 |
4The profit-maximising number of workers is:
- A 6
- B 7
- C 5
- D 4
5Which of the following would shift the supply of labour to an occupation to the right?
- A an increase in demand for the product the workers make
- B a rise in the wage paid in the occupation
- C a cut in the qualifications needed to enter the occupation
- D a rise in wages in similar occupations
6The main reason surgeons earn far more than cleaners is that:
- A surgeons work longer hours than cleaners
- B hospitals have more money to spend than cleaning firms
- C cleaners are not members of trade unions
- D the supply of people able to do the job is limited by years of training, so it is inelastic
Use the information below for questions 7 to 8.
In a labour market the equilibrium wage is £8 an hour, with 1.0 million people employed. A minimum wage of £10 an hour is introduced. At £10, firms want to employ 0.9 million workers and 1.3 million people want to work.
7The number of jobs lost as a result of the minimum wage is:
- A 400,000
- B 100,000
- C 300,000
- D 900,000
8Total hourly earnings of the workers employed in this market after the minimum wage are:
- A £9 million
- B £8 million
- C £13 million
- D £10 million
9A rise in the minimum wage is least likely to reduce employment when:
- A the demand for labour is wage inelastic
- B firms can easily replace workers with machines
- C the minimum wage is set well above the equilibrium wage
- D the demand for labour is wage elastic
10Which of the following makes a labour market more flexible?
- A a rise in the National Living Wage
- B employers being able to vary workers' hours as demand changes
- C a requirement that all workers join a trade union
- D longer notice periods before a worker can be made redundant
11Other things being equal, inward migration of workers into an occupation is likely to:
- A leave the wage unchanged because migrants accept the going rate
- B shift the supply of labour to the left, raising the wage
- C shift the demand for labour to the right, raising the wage
- D shift the supply of labour to the right, lowering the wage and raising employment
12Unfilled vacancies for electricians in London at the same time as unemployed electricians in the North East are best explained by:
- A a national minimum wage set too high
- B the demand for electricians being a derived demand
- C geographical immobility of labour
- D occupational immobility of labour
13Adult social care in England employs about 1.6 million people, most of them care workers in private firms paid by local councils to look after older and disabled people. The sector reports a vacancy rate of around 8%, far above the national average. Most providers pay at or close to the National Living Wage, which rose to £12.21 an hour in April 2025, because the fees councils pay leave little room to offer more. Table 1 shows an estimate of the demand for and supply of care workers at different hourly wages. Figures in the table are illustrative.
| Hourly wage (£) | 12 | 13 | 14 | 15 |
|---|---|---|---|---|
| Workers demanded by providers | 1.75 | 1.65 | 1.55 | 1.45 |
| Workers willing to work | 1.45 | 1.55 | 1.65 | 1.75 |
(a)Using Table 1, calculate the shortage of care workers at a wage of £12 an hour. [2]
(b)Explain two reasons why the supply of labour to social care is low at any given wage. [4]
(c)With the aid of a labour market diagram, explain how a rise in the National Living Wage to £13.50 an hour would affect the shortage of care workers. [6]
(d)Explain why nurses are paid more than care workers. [6]
14Evaluate the view that raising the National Living Wage is the best way to reduce low pay. [20]
Answers
Show the answers
AO1 knowledge, AO2 application, AO3 analysis, AO4 evaluation.
| Answer | Why | |
|---|---|---|
| 1 | B | Firms hire labour for what it produces; demand for the workers comes from demand for the product. |
| 2 | D | The extra worker adds MRP to revenue and the wage to costs; hiring continues until the two are equal. |
| 3 | A | If labour is a small share of costs, a wage rise barely changes total costs or price, so firms cut few jobs. |
| 4 | C | The 5th worker adds 12 units, an MRP of £120, more than the £100 wage; the 6th adds 8 units, an MRP of £80, less than the wage. |
| 5 | C | Lower entry requirements mean more people can offer themselves for the job at every wage; a higher wage in the occupation itself is a movement along the curve. |
| 6 | D | Wage differentials follow from demand and supply: a small, inelastic supply of qualified people set against a high marginal revenue product gives a high equilibrium wage. |
| 7 | B | Employment falls from 1.0 million to 0.9 million. The 400,000 gap between supply and demand at £10 includes 300,000 people drawn into the market by the higher wage who were not working before. |
| 8 | A | 0.9 million workers × £10 = £9 million an hour, up from 1.0 million × £8 = £8 million before: those who keep their jobs gain more than those who lose them. |
| 9 | A | With inelastic demand, a higher wage leads to only a small fall in the quantity of labour demanded. |
| 10 | B | Flexibility means wages, hours and employment adjust quickly to changing conditions; the other three make adjustment slower or more costly. |
| 11 | D | More people offering to work at each wage is a rightward shift in supply; the new equilibrium has a lower wage and more people employed. |
| 12 | C | The skills match but the workers cannot or will not move, often because of housing costs and family ties. |
13 (a) Using Table 1, calculate the shortage of care workers at a wage of £12 an hour. [2: AO2 2]
- AO2 (1) 1.75 − 1.45
- AO2 (1) 0.30 million, or 300,000 workers
13 (b) Explain two reasons why the supply of labour to social care is low at any given wage. [4: AO1 2, AO2 2]
- AO1+AO2 (2) Non-wage factors: the work is physically and emotionally demanding, often with unsocial hours and split shifts, so at any wage fewer people are willing to do it than an easier job paying the same
- AO1+AO2 (2) Close substitutes in the labour market: retail, hospitality and warehouse jobs pay about the same (at or near the National Living Wage) with less responsibility, so workers who could do care choose them instead
- AO1+AO2 (2) Or: low status and few career ladders, so the occupation does not attract people who want progression; or the sector's reliance on migrant workers, so visa rules restrict supply
Maximum 4: two reasons, each explained and applied to care work.
13 (c) With the aid of a labour market diagram, explain how a rise in the National Living Wage to £13.50 an hour would affect the shortage of care workers. [6: AO1 2, AO2 1, AO3 3]
- AO1 (2) Diagram: wage rate against quantity of labour, downward-sloping demand (MRP) and upward-sloping supply; the current wage W1 (£12.21) below the equilibrium W2 (£13.50) with the shortage shown as the gap between quantity demanded and quantity supplied at W1
- AO3 (1) At £12.21 the wage is held below equilibrium by council funding, so providers want more workers than are willing to work: a shortage (excess demand) of around 300,000
- AO3 (1) A National Living Wage of £13.50 raises the wage to the equilibrium: more people are willing to work in care (movement along supply) and providers demand fewer workers (movement along demand)
- AO3 (1) Quantity supplied and demanded meet at 1.60 million, so the shortage closes
- AO2 (1) Application: this only holds if councils raise the fees they pay providers to cover the higher wage; if fees are unchanged, providers cannot afford to hire at £13.50 and demand shifts left instead, so vacancies fall but so does employment
Levels: 1 to 2 for a description with a partly correct diagram; 3 to 4 for a correct diagram showing the shortage and the move to equilibrium; 5 to 6 for the full chain of reasoning applied to the care sector, including the funding point.
13 (d) Explain why nurses are paid more than care workers. [6: AO1 2, AO2 2, AO3 2]
- AO1 (1) Wage differentials arise from differences in the demand for and supply of labour in each occupation
- AO3 (1) Supply: nursing needs a degree and registration, so the supply of nurses is smaller and more inelastic than the supply of care workers, which needs no formal qualification; a restricted supply raises the equilibrium wage
- AO3 (1) Demand: nurses' marginal revenue product is higher because their skills allow them to carry out clinical tasks that care workers cannot, so employers are willing to pay more
- AO2 (1) Application: most nurses are employed by the NHS on national pay scales negotiated collectively, while care workers are spread across thousands of small private providers with little bargaining power
- AO2 (1) Application: councils' fees act as a ceiling on what care providers can pay, which holds care wages near the National Living Wage
- AO1 (1) A labour market diagram for each occupation (steeper, further-left supply for nurses, demand further right) or a comparison of the two equilibria earns the final mark
14 Evaluate the view that raising the National Living Wage is the best way to reduce low pay. [20: AO1 6, AO3 6, AO4 8]
Knowledge and analysis (AO1 to AO3)
- Define the National Living Wage as a legal minimum hourly wage (a price floor in the labour market) and low pay as earning below some fraction of median hourly pay (the Low Pay Commission uses two-thirds).
- The case for: a minimum wage set above the equilibrium raises the wage of every worker who keeps their job; show on a labour market diagram the wage rising from We to Wmin, with employment falling from Qe to Qd and an excess supply of labour Qs minus Qd. If demand for labour is wage inelastic, employment falls little and total earnings of low-paid workers rise.
- The case for: where employers have buying power in the labour market (a few large employers in a town, or care providers funded by councils), the wage is held below the competitive level; a minimum wage can then raise pay without cutting jobs, and may raise employment. The UK's experience since 1999, with the minimum wage rising faster than average earnings and little measurable job loss, supports this.
- Further benefits: higher pay can raise motivation and productivity and cut staff turnover, which lowers firms' recruitment costs; higher incomes for low earners reduce the benefits bill and increase tax revenue.
- The case against: if demand for labour is wage elastic (small firms, labour a large share of costs, easy substitution by machines or self-service), a higher floor costs jobs, hours or training; firms may pass higher costs on as higher prices, which hits low-income consumers; a single national rate is high relative to local wages in low-cost regions.
- Alternatives: in-work benefits and tax credits (Universal Credit) raise take-home pay without raising employers' costs, but are paid for by taxpayers and can subsidise low-paying firms; raising the income tax personal allowance; investment in education, training and apprenticeships, which raises workers' marginal revenue product and so their market wage; stronger trade union bargaining; measures to raise productivity in low-paying sectors.
Evaluation (AO4)
- It depends on where the floor is set relative to the equilibrium wage: a modest rise reduces low pay with little job loss; a large rise in a competitive market trades higher pay for fewer jobs.
- It depends on the elasticity of demand for labour in low-paying sectors (hospitality, retail, care), which varies, and on whether employers hold buying power.
- It depends on the time horizon: in the long run firms can substitute capital for labour (self-checkouts, automation), so job effects grow.
- Low pay is partly a productivity problem: a wage floor raises the price of labour but not its value, so training and investment attack the cause while the minimum wage treats the symptom.
- The minimum wage targets hourly pay, not household income: many low-paid workers are second earners in better-off households, while poverty depends on hours worked and family size, which in-work benefits target better.
- Best for whom: workers who keep their jobs gain, those who lose hours or jobs lose, and consumers and taxpayers bear part of the cost whichever policy is chosen.
Judgement
A supported judgement might conclude that the National Living Wage is an effective and cheap way to raise hourly pay at the bottom, and the evidence so far suggests the employment cost has been small, but it is not the best single policy: it does nothing about productivity or hours, and beyond some point the job losses outweigh the gains. It works best alongside in-work support and investment in skills rather than instead of them.
Marking
Bands, out of 20 (AO1 knowledge 6, AO3 analysis 6, AO4 evaluation 8, as WJEC marks a 20-mark question). Top band (16 to 20): a range of points developed in full chains of reasoning, supported by an accurate diagram and real examples, with evaluation that weighs the arguments and reaches a judgement that depends on stated conditions. Middle band (9 to 15): some developed chains, a relevant diagram, evaluation present but one-sided or asserted. Bottom band (1 to 8): points listed or described, little use of theory or examples, judgement missing or unsupported.