Cambridge IGCSE Economics: Workers, wages and trade unions (0455)

This guide covers sections 3.3 (Workers) and 3.4 (Trade unions) of the Cambridge IGCSE Economics 0455 syllabus for examination in 2026. The subject is not tiered, so all candidates study all of it. Every firm, country and figure below is invented and is there only to show the method. For the wider topic see Microeconomic decision makers. Condensed recall is in the revision notes and exam-style questions are in the practice set. The Cambridge IGCSE Economics hub, the printable checklist and the free diagnostics sit alongside.

What you must be able to do

Section	Outcome
3.3.1	Explain wage and non-wage factors in choosing an occupation
3.3.2	Explain wage determination: demand and supply, relative bargaining power, government policy including a minimum wage
3.3.3	Explain earnings differences (skilled/unskilled, primary/secondary/tertiary, male/female, private/public); define, draw and interpret labour-market diagrams
3.3.4	Give advantages and disadvantages of division of labour and specialisation for workers, firms and the economy
3.4.1	Define a trade union
3.4.2	Explain the role of unions: collective bargaining on wages, hours and conditions; protecting employment; influencing government policy
3.4.3	Weigh advantages and disadvantages of union activity for workers, firms and government; explain what affects union strength

3.3.1 Choosing an occupation

A worker compares jobs on wage factors and non-wage factors.

• Wage factors: the pay rate, overtime, bonuses, commission and other money rewards.
• Non-wage factors: job security, working hours and flexibility, working conditions and safety, promotion prospects, training offered, holidays and pensions, how interesting the job feels, location and the cost of travelling, and the worker’s own qualifications and skills.

Different people weight these differently. A parent with young children may accept lower pay for flexible hours. A school-leaver may take a lower wage for training that raises later earnings.

Worked example. A worker compares two jobs (invented). Job A pays 2,600 a month with a long journey. Job B pays 2,400 a month plus a 300 transport and meal allowance. Job B’s money package is 2,400 + 300 = 2,700, which beats 2,600 before any non-wage factors are counted, and the shorter journey adds to its appeal. The choice depends on the whole package, not the basic wage alone.

3.3.2 How wages are determined

Demand and supply

A wage is the price of labour. Demand for labour comes from firms. It is a derived demand, because firms want workers only to produce goods that consumers buy. The demand curve slopes downward: at a higher wage, firms hire fewer workers. Supply of labour comes from workers. It slopes upward: a higher wage attracts more people into the occupation. The equilibrium wage is where the two curves cross.

Take a market for bakers in Country A (invented). The table shows the numbers of workers wanted and on offer at each hourly wage.

Hourly wage	Workers demanded	Workers supplied	Result
8	1,100	500	shortage of 600
10	1,000	700	shortage of 300
12	900	900	equilibrium
14	800	1,100	surplus of 300
16	700	1,300	surplus of 600

The diagram has wage on the vertical axis and number of workers on the horizontal axis. The downward-sloping demand curve D and upward-sloping supply curve S cross at wage 12 and 900 workers.

Changes. Suppose the demand for bread rises, so firms want 150 more bakers at every wage. D shifts right. The new equilibrium is wage 13 and 1,000 workers. The wage rises by (13 - 12)/12 = 8.3% and employment by (1,000 - 900)/900 = 11.1%. Now suppose instead that supply falls by 150 at every wage (for example because a long training course is required). S shifts left, the wage rises to 13 and employment falls to 850.

Causes of a shift in demand: demand for the product, labour productivity, the price of other factors such as machines. Causes of a shift in supply: the number of qualified people, the wages and conditions in other jobs, the length and cost of training, migration and the size of the working population.

Relative bargaining power

Wages are also set by negotiation. A group with strong bargaining power can push the wage above what supply and demand alone would give. Power rises with union membership, scarce skills, a profitable employer, and a threat of action that would hurt the employer. A worker alone facing a large employer has little power.

Government policy and the minimum wage

A minimum wage is a legal floor under the hourly wage. It aims to raise low pay and cut poverty.

• If it is set below equilibrium (for example 10 in the table), it has no effect, because the market wage of 12 is already higher.
• If it is set above equilibrium, at 14, firms demand 800 workers but 1,100 want work. There is a surplus of 300 workers, which is unemployment.

Winners and losers: the 800 who keep jobs earn more. Their hourly wage bill rises from 12 x 900 = 10,800 to 14 x 800 = 11,200 (up 3.7%), yet 100 workers lose jobs and 300 are unemployed in total. Firms face higher costs, which may lead to higher prices, fewer workers, or more machines. Whether the minimum wage helps depends on how many jobs are lost compared with how many workers gain.

Governments also influence pay through the wages they pay in the public sector, training schemes that raise supply, and laws against discrimination.

3.3.3 Why earnings differ

Use the labour-market diagram for each case: say which curve moves, how the wage changes, and why.

• Skilled and unskilled. Skilled workers need long, costly training, so supply is small. Their output is valuable, so demand is high. Equilibrium wage is high. Unskilled labour is plentiful with low demand, so its wage is low. Skilled workers often also have stronger bargaining power.
• Primary, secondary and tertiary sectors. The primary sector extracts natural resources (farming, mining), the secondary sector makes goods, and the tertiary sector provides services. Earnings differ because of skill levels, the value of output per worker, and the numbers seeking work. A sector with many people and low productivity, often farming in a poor country, tends to pay little. Demand for workers in a sector shifts as the economy changes, for example when factories use machines and need fewer workers.
• Male and female. Gaps arise because of differing occupations, career breaks and part-time work, and discrimination, which means treating workers differently because of gender (or race, age and so on) rather than skill. If employers discriminate, demand for the group falls and its wage drops below that of equally productive workers. In an invented example, men earn 40 an hour and women 34, so women’s pay is 34/40 = 85% of men’s and the gap is (40 - 34)/40 = 15%. A gap in averages does not always prove discrimination, because jobs and hours differ. Governments respond with equal pay laws.
• Private and public. Public-sector pay is set by the government and may be restricted by budgets, but may bring greater security and pensions. Private-sector pay follows profits and market forces more closely. Either can be higher. In an invented case, public-sector monthly pay of 2,800 compares with 3,150 in the private sector, so public pay is 11.1% lower; looking the other way, private pay is 12.5% higher. Always state the base you use.

3.3.4 Division of labour and specialisation

Division of labour means breaking a job into steps so that each worker repeats one step. Specialisation is when workers, firms or regions concentrate on what they do best.

Worked example. In a small lamp workshop (invented), six workers each make a lamp alone and finish 5 a day, so total output is 30. With the work split into tasks, the six produce 72. Output per worker rises from 5 to 12, up 140%. If each worker is paid 90 a day, labour cost per lamp falls from 90/5 = 18 to 90/12 = 7.5, down 58.3%.

	Advantages	Disadvantages
Workers	Become faster and more skilled at one task; may earn more; less time lost switching tasks	Boredom, little variety, lower job satisfaction; skills may become narrow and outdated; harder to find another job
Firms	Higher output per worker, lower unit costs, easier training	Work stops if one group is absent; low morale can cause errors and absence; reliance on a few tasks
Economy	Higher output and living standards; goods may be cheaper; gains from trade	Structural unemployment if a specialised industry declines; over-dependence on a few products

3.4 Trade unions

3.4.1 Definition

A trade union is an organisation of workers that aims to protect and improve its members’ pay and working conditions.

3.4.2 Role in the economy

• Collective bargaining. Union representatives negotiate with an employer for all members together on wages, working hours and working conditions. This gives workers more power than they have alone.
• Protecting employment. They resist redundancies, argue for retraining, support members facing unfair dismissal and push for safe workplaces.
• Influencing government. They lobby on the minimum wage, employment law, taxes and welfare, and may campaign publicly.

Worked example. A firm employs 80 staff on 400 a week each, so the weekly bill is 32,000 and the yearly bill 1,664,000 (52 weeks). The union asks for 8% (432 each); the firm offers 3% (412). They settle at 5%: 420 each. The weekly bill becomes 33,600 and the yearly bill 1,747,200, a rise of 83,200. If inflation was 4%, the real rise is about 1.05/1.04 - 1 = 0.96%, so the deal barely lifts purchasing power.

3.4.3 Advantages and disadvantages

Viewpoint	Advantages	Disadvantages
Workers	Higher pay, better conditions, job protection, a voice, legal support	Subscription fees; strikes cost lost wages; may keep wages above market level so some lose jobs
Firms	Single point of negotiation; better communication; motivated, loyal staff	Higher labour costs; strikes disrupt output and orders; slower change if machines replace workers
Government	Fewer disputes if bargaining works; helps identify workers’ concerns; can support a more equal income distribution	Pressure for costly policies; strikes in essential services; higher wages may push up prices

Strike cost. If 200 workers on 80 a day strike for 6 days, they lose 200 x 6 x 80 = 96,000 in wages, and the firm loses output and may lose customers.

Factors affecting union strength:

• High membership as a share of workers (60% if 360 of 600 are members).
• Scarce skills that are hard to replace.
• A profitable firm that can afford higher pay.
• Low unemployment, so strikers are hard to replace.
• Supportive government law, and a rising demand for the firm’s product.
• Unity of the members and strong leaders.

Weak unions face the opposite: low membership, plentiful unskilled substitutes, firms in difficulty, high unemployment, and laws that limit strikes.

Evaluation chain: does a minimum wage help low-paid workers?

1. A wage floor above equilibrium lifts pay for those still employed.
2. At the higher wage firms demand fewer workers, and more people want to work.
3. So jobs are lost and unemployment appears.
4. The result depends on how responsive demand is: if employers cut few jobs, workers gain on balance; if many, the harm to those who lose work may exceed the gain.
5. Judgement: a modest minimum near the equilibrium wage carries little risk, while a high one is damaging. Support your view with the figures.

Common errors

• Drawing the minimum wage below equilibrium and still claiming unemployment.
• Calling a demand shift a movement along the curve.
• Mixing the base in a percentage gap.
• Listing union advantages for workers only; the syllabus also asks about firms and government.

Official syllabus

Cambridge IGCSE Economics 0455 syllabus for examination in 2026, version 2, published by Cambridge University Press & Assessment, sections 3.3 and 3.4.