Cambridge O Level Economics: Workers, wages and specialisation (2281) – Revision Notes

These notes condense section 3.3 (Workers) of the Cambridge O Level Economics 2281 syllabus for examination in 2026, covering 3.3.1 to 3.3.4. The syllabus is not tiered. The study guide explains each idea in full. Then try the practice questions or a free diagnostic. The course hub and printable checklist list what else to cover. All figures here are invented.

Key terms

Term	Meaning
Occupation	The type of work a person does
Wage factors	Money rewards: basic pay, overtime, bonuses, commission, benefits such as a pension
Non-wage factors	Security, hours, conditions, journey to work, training, promotion, job satisfaction, status
Derived demand	Demand for labour that comes from demand for the product
Equilibrium wage	The wage where demand for labour equals supply of labour
Minimum wage	A legal lowest wage; binding only if above equilibrium
Bargaining power	Ability of workers or employers to push a pay deal their way
Discrimination	Paying or treating people differently for reasons unrelated to their ability
Division of labour	A job broken into stages, each stage given to a different person
Specialisation	A worker, firm or country focusing on the activity it does best

3.3.1 Choice of occupation

• Wage factors: basic wage, overtime, bonus, benefits, pay growth.
• Non-wage factors: security, hours, conditions and safety, commute, training, promotion, satisfaction, status, qualifications needed.
• Different people weight the factors differently, so two people can rationally choose different jobs.

Method: compare two jobs. (1) List the pay of each. (2) Add benefits that have a money value. (3) Count the time committed, including the journey. (4) Compare pay per hour committed. (5) Add non-wage points that cannot be counted.

Reminder. A worker earns 9 an hour for 40 hours and 6 hours of overtime at time-and-a-half. Overtime = 6 × 9 × 1.5 = 81. Weekly pay = 40 × 9 + 81 = 441.

3.3.2 Wage determination

Labour market diagram. Vertical axis: wage rate. Horizontal axis: quantity of labour. Demand slopes down, supply slopes up, and the equilibrium wage and employment are where they cross. Label D, S, the equilibrium wage and quantity.

Change	Curve	Effect on wage and employment
Higher demand for the product	Demand shifts right	Wage up, employment up
Higher labour productivity	Demand shifts right	Wage up, employment up
More people qualify, or migration	Supply shifts right	Wage down, employment up
Other jobs become more attractive	Supply shifts left	Wage up, employment down
Worse conditions in the job	Supply shifts left	Wage up, employment down

Bargaining power. Stronger: scarce skills, high union membership, low unemployment, hard to replace. Weaker: easily replaced, unorganised, high unemployment, large employer with few rivals.

Minimum wage method. (1) Find the equilibrium. (2) Is the minimum above it? If not, no effect. (3) If above, read demand (jobs) and supply (people wanting jobs) at the minimum. (4) Surplus = supply − demand.

Reminder. Market for cleaners, wage per hour: 4, 5, 6, 7, 8. Demand: 500, 450, 400, 350, 300. Supply: 200, 300, 400, 500, 600. Equilibrium: wage 6, employment 400. A minimum of 7 gives demand 350 and supply 500: surplus 150. Jobs lost = 400 − 350 = 50, a fall of 12.5%. Wage bill: 6 × 400 = 2,400 rises to 7 × 350 = 2,450. The workers still employed gain, but 50 lose their jobs. A minimum of 5 has no effect.

Evaluation points on a minimum wage. For: helps low-paid workers, may raise motivation and cut staff turnover. Against: unemployment if set too high, higher prices, firms may replace workers with machines, harder to enforce in informal work. The size of the effect depends on how far above equilibrium it is and how responsive firms are.

Other government policies: equal pay laws, training subsidies, taxes on earnings, public sector pay decisions.

3.3.3 Differences in earnings

Use the same four reasons each time: demand and supply, bargaining strength, discrimination, government policy.

Pair	Higher earner	Main reasons
Skilled and unskilled	Skilled	Long training limits supply; high productivity lifts demand; compensates for training cost; often stronger bargaining
Primary, secondary, tertiary	Often tertiary	Skill levels and value added; large supply of low-skilled workers in primary work; seasonal work; differs by country
Male and female	Men on average	Discrimination, crowding into fewer jobs, part-time work and career breaks, weaker bargaining; equal pay law narrows the gap
Private and public	Varies	Public pay set by the government and scales; private pay follows profit; compare pensions and security

Calculations to practise.

• Percentage difference: (higher − lower) ÷ base × 100. The base changes the answer. If A earns 18 and B earns 12, A earns (18 − 12) ÷ 12 = 50% more, but B earns (18 − 12) ÷ 18 = 33.3% less.
• Gender pay gap: (male − female) ÷ male × 100. If men earn 22 and women 16.5, the gap is 5.5 ÷ 22 = 25%.
• Package value: basic pay plus benefits in money. Public 1,800 plus 10% pension = 1,980. Private 1,900 plus 3% = 1,957.
• Payback on training: (earnings lost during training + fees) ÷ extra earnings per year.

Crowding diagram sketch. Draw the same labour market. Extra people entering one occupation shift supply right: the wage falls and employment rises. Say that this can lower a group’s average earnings.

Sector shares reminder. In Country B (illustrative), employment shares move from primary 30%, secondary 25%, tertiary 45% to primary 20%, secondary 25%, tertiary 55%. The shares must sum to 100% each time. Because tertiary pay is higher in this example, average earnings rise even if no sector’s pay changes.

3.3.4 Division of labour and specialisation

Reminder. A bakery has 4 workers. Alone, each makes 25 loaves a day: output 100. With one worker mixing, one shaping, one baking and one packing, output is 160. Gain = (160 − 100) ÷ 100 = 60%. Output per worker rises from 25 to 40.

Group	Advantages	Disadvantages
Workers	Practice builds skill, higher productivity, possibly higher pay	Repetitive, deskilled, less satisfied, easily replaced
Firms	More output, lower unit cost, quicker training	Absence or fault stops the line, lower quality control, staff turnover
Economy	More output, lower prices, exports	Structural unemployment, dependence on a few industries, occupational immobility

Chain of reasoning. Specialisation raises output per worker, so unit labour cost falls, so the firm can cut prices or raise profit. If the work is repetitive, motivation may fall and absence may rise, which can offset part of the gain.

Quick self-test

1. Name two wage factors and two non-wage factors in choosing an occupation.
2. Why is demand for labour called a derived demand?
3. A job pays 1,800 a month for 20 days of 8 hours with 1 hour of daily commuting. Find pay per hour committed.
4. State the effect of a minimum wage set below the equilibrium wage.
5. Using the cleaners table above, what is the surplus at a wage of 8?
6. Men earn 25 an hour and women 21. Find the gender pay gap as a percentage.
7. Give two reasons why skilled workers earn more than unskilled workers.
8. Why might public sector workers accept lower basic pay than private sector workers?
9. Name one advantage and one disadvantage of division of labour for a worker.
10. A factory’s output rises from 80 to 140 units with the same 7 workers. Find the rise in output per worker.

Answers

1. Wage: basic pay, overtime, bonus, benefits. Non-wage: security, hours, conditions, commute, promotion prospects.
2. Firms hire labour only to make products that consumers want, so demand for workers depends on demand for the product.
3. Hours committed = (8 + 1) × 20 = 180. Pay per hour = 1,800 ÷ 180 = 10.
4. None: the market wage is already above the minimum, so it is not binding.
5. At 8, supply = 600 and demand = 300: surplus = 300.
6. (25 − 21) ÷ 25 × 100 = 16%.
7. Training takes time and money, so supply is smaller; skilled workers are more productive, so demand is higher. Bargaining power may also be stronger.
8. Pensions and job security can make up for lower pay; the package matters.
9. Advantage: faster skill and higher output. Disadvantage: boredom or deskilling.
10. Output per worker rises from 80 ÷ 7 = 11.43 to 140 ÷ 7 = 20, a rise of 8.57 units, or 75%.

Where marks are usually lost

• Listing wage factors alone for a question on why someone picks a job.
• Labelling the labour market diagram with price and quantity of a product instead of wage and quantity of labour.
• Writing that a minimum wage always raises unemployment without saying it must be above equilibrium.
• Using the wrong base in a percentage difference.
• Stating an earnings difference without a reason from demand and supply, bargaining, discrimination or policy.
• Describing the advantages of division of labour for the firm when the question asks about workers.
• Listing points without a development or a judgement when the command word is “evaluate” or “discuss”.
• Treating a gender pay gap as proof of discrimination, with no mention of other causes.

Official syllabus

Cambridge O Level Economics 2281, syllabus for examination in 2026, version 2, section 3.3 (Workers), Cambridge Assessment International Education, part of Cambridge University Press & Assessment.