OxfordAQA International GCSE Economics: The labour market and wage determination (9214) – Revision Notes

These notes summarise section 3.1.5.4, The labour market, from the OxfordAQA International GCSE Economics (9214) specification (first teaching September 2023, first examined May/June 2025). The content sits in Paper 1: How markets work. Full explanations and more worked examples are in the study guide. Once you have revised, try the practice questions.

Other useful pages: markets revision notes, the course hub, the checklist and the free 10-minute diagnostics. All figures are invented and illustrative.

Key definitions

Term	Meaning
Labour market	The market in which firms demand labour and households supply it
Wage	The price of labour, per hour or per year
Derived demand	Demand for labour that depends on demand for the product the labour makes
Equilibrium wage	The wage at which firms hire exactly the number of workers who offer to work
Wage differential	A gap in pay between two jobs or two workers
Wage bill	Wage multiplied by the number of workers employed
Occupational immobility	Workers lack the skills to move between jobs
Geographical immobility	Workers cannot or will not move to another area

Role of the labour market

• Sets the wage and the level of employment.
• Allocates workers to jobs: higher pay attracts labour where it is scarce.
• Links households (supply) and firms (demand).
• Unlike a goods market, workers also value hours, conditions, location and security.

Labour demand and labour supply compared

	Demand side	Supply side
Curve slopes	Down	Up
Reason	Higher wage means higher cost, so fewer hired	Higher wage attracts more workers and hours
Movement along	Change in the wage	Change in the wage
Shifts right	Higher product demand, higher productivity, dearer machines, more firms	More training places, more working-age people or migration, lower pay in other jobs, better conditions
Shifts left	The opposite	Higher pay in other jobs, tougher entry requirements, poorer conditions

Reminder: lower wages in other jobs make this job more attractive, so supply shifts right. Higher pay elsewhere shifts it left. A rise in this job’s own wage is only a movement along the supply curve.

Method for wage questions

1. Write the equilibrium: demand quantity equals supply quantity.
2. Identify the event (rise in product demand, new training, minimum wage).
3. Decide which curve shifts, and which way. Never shift both unless the case says so.
4. Read off the new wage and employment, then compute percentage changes.
5. State the effect on workers (pay, jobs) and firms (costs).

Worked reminder

In an illustrative market for bakery assistants in Region C, demand is 160 - 4W and supply is 6W - 40.

• Equilibrium: 160 - 4W = 6W - 40, so 10W = 200, W = 20 cu and 80 workers.
• Wage bill: 20 × 80 = 1,600 cu per hour.
• Demand rises by 20 at every wage: 180 - 4W = 6W - 40, so W = 22 cu and 92 workers. Wage up 10%, employment up 15%.
• Supply falls by 30 at every wage (6W - 70): 160 - 4W = 6W - 70, so W = 23 cu and 68 workers. Wage up 15%, employment down 15%.
• Surplus at 25 cu: demand 60, supply 110, so 50 workers are unemployed.

Worked reminder: a differential between occupations

Illustrative Country B has two markets. For skilled welders, demand is 240 - 2W and supply is 2W - 60. Then 240 - 2W = 2W - 60 gives 4W = 300, so W = 75 cu and 90 welders. For unskilled labourers, demand is 130 - 4W and supply is 6W - 70. Then 10W = 200, so W = 20 cu and 50 labourers.

• Absolute differential: 75 - 20 = 55 cu per hour.
• Relative differential: 55 / 20 × 100 = 275% higher, or 3.75 times as much.
• A 36-hour week pays welders 75 × 36 = 2,700 cu and labourers 20 × 36 = 720 cu.
• Explanation: welding takes long training, so supply is scarce, and a welder’s output is valuable, so demand is firm. Labouring needs little training, so many people can do it.

Wages out of equilibrium

Wage compared with equilibrium	Result	Typical cause
Below	Shortage of workers, vacancies, upward pressure	Sudden rise in demand
Above	Surplus of workers, unemployment in that job	Union agreement, legal minimum wage

Wage differentials

Between occupations

Reason	Effect
Long or costly training, licences	Supply is lower, wage is higher
High productivity or valuable output	Demand is higher, wage is higher
Danger, unsocial hours, unpleasant work	Extra pay needed to attract workers
Strong union	Pay may be above the market level
Immobility	Gaps persist because workers cannot move
Plentiful, unskilled labour	Large supply keeps pay low

Within an occupation

• Experience and length of service.
• Extra qualifications or responsibility.
• Performance pay: bonuses, commission, piece rates.
• Location and cost of living.
• Hours, overtime, night shifts.
• Employer: sector, size, profitability.
• Discrimination, where pay differs for reasons unrelated to ability.

Pairs not to confuse

• Sliding along a curve (the wage changed) versus a shifted curve (any other cause).
• Shortage (wage too low) versus surplus (wage too high).
• Between-occupation versus within-occupation differentials.
• Absolute differential (difference in cu) versus relative differential (percentage or ratio). Both can change differently: if one wage is 24 cu and another 15 cu, the absolute gap is 9 cu and the first is 60% higher.

Chains of reasoning to practise

Write each as a short sequence of linked steps.

• Product demand rises → firms want more workers → labour demand shifts right → wage and employment rise → workers gain; firms face higher costs and may raise prices.
• New training scheme → more qualified people → labour supply shifts right → wage falls and employment rises → firms gain from lower costs; existing workers may lose pay.
• Union wins a wage above equilibrium → firms cut hiring (movement up the demand curve) → fewer jobs but higher pay for those kept → surplus of workers.
• Dangerous job → fewer willing workers → supply shifts left → higher wage, which compensates for the risk.
• Workers cannot move between regions → local shortages and surpluses persist → regional wage gaps last.

Evaluation prompts

• Are workers identical, and do they know all vacancies and wages?
• Unions or one dominant employer can move wages away from the simple result.
• A legal minimum wage can raise pay for those in work but may reduce jobs.
• How long do supply and demand take to adjust?
• Which factor matters most in the case given? Justify the choice.

Quick self-test

1. Define the labour market.
2. State two things that shift labour demand to the right.
3. Demand is 160 - 4W and supply is 6W - 40 in a labour market. Find the equilibrium wage and employment.
4. Calculate the wage bill at that equilibrium.
5. Demand rises by 20 at each wage. Find the new wage and the percentage change in employment.
6. At a wage of 25 cu, how large is the surplus of labour?
7. Explain why labour demand is a derived demand.
8. A new law makes a profession need a longer qualification. Which curve shifts and what happens to the wage?
9. Give one reason why two workers in the same job earn different pay.
10. Distinguish occupational from geographical immobility.
11. One occupation pays 24 cu and another pays 15 cu. By what percentage is the first higher?
12. Explain why a wage above equilibrium causes unemployment in that job.

Answers

1. The market where firms demand labour and households supply it, setting the wage and employment.
2. Any two of: higher demand for the product, higher productivity, more firms hiring, dearer substitutes such as machines.
3. 160 - 4W = 6W - 40, so W = 20 cu and employment = 80 workers.
4. 20 × 80 = 1,600 cu per hour.
5. 180 - 4W = 6W - 40 gives W = 22 cu and 92 workers, up 12 from 80, which is a 15% rise.
6. Supply 6 × 25 - 40 = 110, demand 160 - 100 = 60, so the surplus is 50 workers.
7. Firms hire labour to make goods, so if demand for the goods falls, they need fewer workers.
8. Supply shifts left because fewer people can enter; the wage rises and employment falls.
9. Any one of: experience, performance pay, location, hours, employer, discrimination.
10. Occupational: lacking skills for other jobs. Geographical: unable or unwilling to move area for work.
11. (24 - 15) / 15 × 100 = 60%.
12. At a high wage firms demand fewer workers while more people offer to work, so supply exceeds demand and some willing workers cannot find jobs.

Where marks are usually lost

• Writing “demand for labour increases” when only the wage changed, which is a movement along the curve.
• Mixing up shortage and surplus at wages above and below equilibrium.
• Explaining a differential using demand only, or supply only.
• Leaving out the new wage or employment figure after a shift.
• Using percentage points or raw differences when the question asks for a percentage.
• Treating “high pay” as a reason on its own, rather than explaining what causes it.
• Evaluation that lists limits of the model without judging which matters most.
• Missing units (cu per hour) in a wage answer.

Official syllabus

OxfordAQA International GCSE Economics (9214), version 1.0, for exams May/June 2025 onwards, published by OxfordAQA. Section 3.1.5.4, The labour market.