ECS2604 Labour Economics Exam Answers
May/June 2025
SECTION A - MULTIPLE CHOICE ANSWERS
1.1 = [3] labour unions
1.2 = [3] Collective bargaining
1.3 = [1] Bargaining power
1.4 = [3] unit labour costs
1.5 = [2] quantity of output/quantity of input
1.6 = [4] 10; 20
1.7 = [2] increases; decreases
1.8 = [3] (I), (II), and (III) are correct
1.9 = [3] remain the same
1.10 = [2] decreased
1.11 = [4] any investment in a worker's skills
1.12 = [1] direct costs
1.13 = [3] Discrimination
1.14 = [1] formal economy
1.15 = [4] Only (I), (II), (III), and (IV) are correct
SECTION B - SHORT QUESTIONS
QUESTION 1
1.1 Five factors that determine the relative power of parties in collective bargaining (10 marks)
The balance of power in collective bargaining negotiations is influenced by several key factors that can
shift the advantage between unions and employers:
Union membership density and solidarity plays a crucial role in determining bargaining strength. When
unions have high membership rates and strong internal cohesion, they can mobilize more effectively
, and present a united front during negotiations. In the South African context, sectors like mining and
public service tend to have stronger union presence, giving workers more leverage.
Economic conditions and labour market tightness significantly affect bargaining power. During periods
of low unemployment and skills shortages, workers have more power as employers compete for scarce
labour. Conversely, high unemployment weakens union positions as employers can more easily replace
striking workers.
Financial resources and strike funds determine how long each party can sustain industrial action. Well-
funded unions can support members during extended strikes, while employers with substantial reserves
can weather work stoppages. The ability to outlast the other party often determines negotiation
outcomes.
Legal and institutional framework shapes the bargaining environment. South Africa's Labour Relations
Act provides specific rights and procedures that influence how negotiations unfold. The presence of
bargaining councils and sectoral determinations also affects the relative power dynamics.
Strategic importance of the workforce matters significantly. Workers in essential services or highly
skilled positions have more bargaining power because their withdrawal of labour causes immediate and
substantial disruption to operations, giving unions stronger negotiating positions.
1.2 Five arguments for and against minimum wage determination (10 marks)
Arguments FOR minimum wages:
Poverty reduction and living standards - Minimum wages help ensure workers earn enough to meet
basic needs and support their families. In South Africa's context of high inequality, this is particularly
important for addressing historical disadvantages and improving quality of life for the lowest-paid
workers.
Reducing exploitation - Minimum wages protect vulnerable workers from employers who might take
advantage of their weak bargaining position. This is especially relevant in sectors with high levels of
informality where individual workers have little negotiating power.
Economic stimulus through increased demand - When low-income workers earn more, they typically
spend most of their additional income, creating multiplier effects that benefit the broader economy.
This demand-side stimulus can boost economic growth.
Addressing market failures - In situations where employers have monopsony power or where there's
insufficient competition, minimum wages can help correct market distortions and ensure more efficient
outcomes.
Social cohesion and stability - By reducing extreme inequality and ensuring basic living standards,
minimum wages contribute to social stability and reduce the risk of labour unrest or social tensions.
Arguments AGAINST minimum wages:
May/June 2025
SECTION A - MULTIPLE CHOICE ANSWERS
1.1 = [3] labour unions
1.2 = [3] Collective bargaining
1.3 = [1] Bargaining power
1.4 = [3] unit labour costs
1.5 = [2] quantity of output/quantity of input
1.6 = [4] 10; 20
1.7 = [2] increases; decreases
1.8 = [3] (I), (II), and (III) are correct
1.9 = [3] remain the same
1.10 = [2] decreased
1.11 = [4] any investment in a worker's skills
1.12 = [1] direct costs
1.13 = [3] Discrimination
1.14 = [1] formal economy
1.15 = [4] Only (I), (II), (III), and (IV) are correct
SECTION B - SHORT QUESTIONS
QUESTION 1
1.1 Five factors that determine the relative power of parties in collective bargaining (10 marks)
The balance of power in collective bargaining negotiations is influenced by several key factors that can
shift the advantage between unions and employers:
Union membership density and solidarity plays a crucial role in determining bargaining strength. When
unions have high membership rates and strong internal cohesion, they can mobilize more effectively
, and present a united front during negotiations. In the South African context, sectors like mining and
public service tend to have stronger union presence, giving workers more leverage.
Economic conditions and labour market tightness significantly affect bargaining power. During periods
of low unemployment and skills shortages, workers have more power as employers compete for scarce
labour. Conversely, high unemployment weakens union positions as employers can more easily replace
striking workers.
Financial resources and strike funds determine how long each party can sustain industrial action. Well-
funded unions can support members during extended strikes, while employers with substantial reserves
can weather work stoppages. The ability to outlast the other party often determines negotiation
outcomes.
Legal and institutional framework shapes the bargaining environment. South Africa's Labour Relations
Act provides specific rights and procedures that influence how negotiations unfold. The presence of
bargaining councils and sectoral determinations also affects the relative power dynamics.
Strategic importance of the workforce matters significantly. Workers in essential services or highly
skilled positions have more bargaining power because their withdrawal of labour causes immediate and
substantial disruption to operations, giving unions stronger negotiating positions.
1.2 Five arguments for and against minimum wage determination (10 marks)
Arguments FOR minimum wages:
Poverty reduction and living standards - Minimum wages help ensure workers earn enough to meet
basic needs and support their families. In South Africa's context of high inequality, this is particularly
important for addressing historical disadvantages and improving quality of life for the lowest-paid
workers.
Reducing exploitation - Minimum wages protect vulnerable workers from employers who might take
advantage of their weak bargaining position. This is especially relevant in sectors with high levels of
informality where individual workers have little negotiating power.
Economic stimulus through increased demand - When low-income workers earn more, they typically
spend most of their additional income, creating multiplier effects that benefit the broader economy.
This demand-side stimulus can boost economic growth.
Addressing market failures - In situations where employers have monopsony power or where there's
insufficient competition, minimum wages can help correct market distortions and ensure more efficient
outcomes.
Social cohesion and stability - By reducing extreme inequality and ensuring basic living standards,
minimum wages contribute to social stability and reduce the risk of labour unrest or social tensions.
Arguments AGAINST minimum wages:
