OCR 2023 ECONOMICS H460/01: MICROECONOMICS A LEVEL QUESTION PAPER & MARK SCHEME (MERGED)

Read the stimulus material and answer all the parts of Question 1. Wage differentials in the USA Research shows the ratio of Chief Executive pay (‘remuneration’) to employee remuneration in the USA has increased significantly since 2010 (see Fig. 1). In 2019, Chief Executives at the largest 350 firms in the USA earned 320 times more than a typical employee. Fig. 1 Chief Executive-to-employee remuneration ratio (USA), 2010–2019 400 350 300 250 200 150 100 50 0 Source: Economic Policy Institute Year Chief Executives earned an average of $21 million in 2019, a 14% increase since 2018. In that year, the US stock market price index, which shows changes in the share prices of US 5 companies also rose (see Fig. 2). Fig. 2 Chief Executive remuneration and stock market performance (USA), 2010–2019 Index $m 3000 30 2500 25 2000 20 1500 15 1000 10 500 5 0 0 Year USA stock market index (LH axis) Chief Executive remuneration, $m (RH axis) Source: Economic Policy Institute 3 © OCR 2023 Turn over This growth in Chief Executive remuneration has happened while wage growth for most Americans has remained relatively low. To distract attention from their remuneration, some Chief Executives have taken a voluntary cut in salary. However, this approach is criticised as much of their remuneration comes from share options (the right to buy shares at set prices) and 10 bonuses. Other policies that may help reduce the remuneration gap between Chief Executive and employee have been suggested, including: • reinstating a higher marginal income tax rate at the very top income levels; • setting corporation tax rates higher for firms that have higher ratios of Chief Executive-toemployee remuneration; 15 • allowing greater use of ‘say on pay’ which allows a firm’s shareholders to vote on Chief Executive remuneration. Society is increasingly recognising who are the essential workers. They harvest our food, stock our grocery shelves and deliver goods all over the country. They look after our children and care for us when we are ill. They are also amongst the lowest-paid workers in the country. Why is this? 20 And, in contrast, why are relatively non-essential jobs, in such areas as entertainment and sport, so well paid? The answer to these questions is not clear. The traditional economics answer would be to consider the concepts of demand and sup