Reasons for Wage Differences

Indicative content guidance

Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited.

Quantitative skills assessed:

QS4: Construct and interpret a range of standard graphical forms.

QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms.

Knowledge, Application and Analysis (12 marks) - indicative content

- This labour market equilibrium may differ between markets and this will cause the wage rate to differ as the equilibrium determines the wage rate

- If the supply or demand for labour changes in a market, this will also change the equilibrium price of labour. Therefore, the supply or demand of labour in a market will cause the wage to differ

- The level of education/skill required for the job. Jobs which require more training and education offer higher wages because the supply of workers with this training and skills will be lower than the supply of unskilled workers

- Wages in the private sector could be lower than the public sector because public sector pay is funded from taxation and not dependent on profit

- In some parts of the private sector firms may have monopsony power and so be able to pay lower wages than firms in other sectors

- Other factors such as age, gender and ethnic background may account for wage differences

- A monopoly/trade union may be able to increase the wage rate through collective bargaining

- Workers may have non-financial benefits that account for some of the difference e.g. hours of work, holidays, security

- Workers may have financial benefits that account for some of the difference e.g. pensions, private healthcare, longer holidays

- If the demand for labour is inelastic wages would be higher than if elastic

- Wages tend to be higher in the sector that has more inelastic demand and /or inelastic supply

Restrict to a maximum of Level 3 if no appropriate diagram provided

Accept reverse argument for KAA

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-3

Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models.

Use of generic material or irrelevant information or inappropriate examples.

Descriptive approach which has no chains of reasoning.

Level 2

4-6

Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models.

Limited application of knowledge and understanding to economic problems in context.

A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.

Level 3

7-9

Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models.

Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer.

Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.

Level 4

10-12

Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models.

Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question.

Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) - indicative content

- If labour is homogenous wage differences may not be different

- If workers and employers have perfect knowledge of the labour market wages will be more similar

- High mobility of labour enables workers to move between jobs and areas keeping wages stable

- If there is no (age/gender/ethnic) discrimination in the market, everyone should be paid the same for the same job

- Relative significance of relevant reasons

- Private sector in some countries may be able to offer higher wages due to higher levels of profit

- In the public sector, the government may have monopsony in the labour market and so can drive down the price of labour as workers have a lower price setting ability

- The wage differential in NZ between workers in the public and private sectors may be temporary e.g. due to a downturn/recession

- Government may limit pay rises for public sector workers e.g. to reduce budget deficit

Level

Mark

Descriptor

0

No evaluative comments.

Level 1

1-3

Identification of generic evaluative comments.

No supporting evidence/reference to context.

No evidence of a logical chain of reasoning.

Level 2

4-6

Evidence of evaluation of alternative approaches.

Some supporting evidence/reference to context.

Evaluation is supported by a partially-developed chain of reasoning.

Level 3

7-8

Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement.

Appropriate reference to evidence/context.

Evaluation is supported by a logical chain of reasoning.