A LEVEL ECONOMICS
NOTES
Evaluate why wage differentials occur
Point 1: Low supply of high-skilled workers
One reason wage differentials occur is because there is a limited supply of high-skilled workers=
High-skilled workers tend to have a very high MRPL meaning that they can generate lots of revenue
for the firm=
As a result of this, the firm theoretically should and does pay the workers higher wages because they
make more money for the firm so they can receive or bargain for a higher wage=
These high-skilled workers tend to be relatively limited and inelastic in supply=
This is because it takes a long time to train and get the experience to be so high-skilled and therefore
the supply tends to be inelastic=
Also, because it is high-skilled, not much of the population can replicate the same kind of work so the
labour is limited in supply here=
Therefore, they can bargain for higher wages from their firms but also, demand tends to be very high
for high-skilled workers as they can increase their revenue by hiring them and taking their MRPL from
another firm=
, Thus, these high-skilled workers are paid a very high wage of W1 in comparison to low-skilled
workers which can be replaced easily so have a low wage rate
Evaluation Point 1: Increased migration
However, foreign neurosurgeons may be attracted by these high wage rates in the UK and therefore
may immigrate to the UK=
Thus, the supply of neurosurgeons in the UK will increase leading SL1 to shift out to SL2=
NOTES
Evaluate why wage differentials occur
Point 1: Low supply of high-skilled workers
One reason wage differentials occur is because there is a limited supply of high-skilled workers=
High-skilled workers tend to have a very high MRPL meaning that they can generate lots of revenue
for the firm=
As a result of this, the firm theoretically should and does pay the workers higher wages because they
make more money for the firm so they can receive or bargain for a higher wage=
These high-skilled workers tend to be relatively limited and inelastic in supply=
This is because it takes a long time to train and get the experience to be so high-skilled and therefore
the supply tends to be inelastic=
Also, because it is high-skilled, not much of the population can replicate the same kind of work so the
labour is limited in supply here=
Therefore, they can bargain for higher wages from their firms but also, demand tends to be very high
for high-skilled workers as they can increase their revenue by hiring them and taking their MRPL from
another firm=
, Thus, these high-skilled workers are paid a very high wage of W1 in comparison to low-skilled
workers which can be replaced easily so have a low wage rate
Evaluation Point 1: Increased migration
However, foreign neurosurgeons may be attracted by these high wage rates in the UK and therefore
may immigrate to the UK=
Thus, the supply of neurosurgeons in the UK will increase leading SL1 to shift out to SL2=
