Syllabus: Cambridge - IGCSE Economics
Module: 3.3 Workers
Lesson: 3.3.2 Wage Determination

Introduction

The Cambridge IGCSE Economics 0455 syllabus includes a focused exploration of labour markets under Topic 3.3: Workers, with 3.3.2 Wage Determination offering a foundational understanding of how wages are set in different labour market conditions. This knowledge supports broader curriculum objectives such as understanding economic agents, incentives, and the efficient allocation of resources.

For teachers, this topic offers an excellent opportunity to connect abstract economic theory to tangible workplace realities. For careers leads and SLT, it links directly to Gatsby Benchmark 4 by highlighting how economic principles affect real-world employment and wage outcomes.

Key Concepts

According to the Cambridge IGCSE Economics specification (0455), section 3.3.2 includes:

• The Determinants of Wages
  Understand how the interaction of demand and supply for labour affects wage levels in different markets.

• Demand for Labour
  Recognise how demand is derived from the demand for the goods/services that labour helps produce. Influencing factors include productivity, profitability, and the cost of capital versus labour.

• Supply of Labour
  Identify factors influencing supply, such as wages in alternative jobs, barriers to entry (e.g. qualifications), migration, and demographics.

• Equilibrium Wage Rate
  Analyse how equilibrium is reached in competitive labour markets and what causes shifts in demand or supply curves.

• Wage Differentials
  Explore reasons why wages vary between and within occupations (e.g. skill levels, working conditions, discrimination, bargaining power, regional differences).

These concepts reinforce students’ ability to apply economic reasoning to everyday labour market dynamics, a key progression skill for post-16 study and career readiness.

Real-World Relevance

Wage determination is a live topic in today’s economic landscape, shaped by:

• The UK NHS pay disputes (2023–2024), where collective bargaining and government intervention directly influenced wage outcomes, making it a useful case study in monopsony power and public sector labour markets.

• Technology sector wages in the private sector have surged in response to high demand for digital skills post-COVID, illustrating derived demand and skill scarcity.

• Regional wage differences, such as the London Weighting, offer real-life applications of compensating wage differentials and geographic labour immobility.

• Minimum wage policy shifts, like the UK’s recent increase to £11.44/hour (April 2024), show how government intervention affects equilibrium, employment levels, and wage floors.

These scenarios allow students to understand economic theory in the context of real organisational decisions and public policy.

How It’s Assessed

Cambridge IGCSE Economics assesses this topic through structured and extended response formats. Teachers should prepare students for:

• Paper 1 (Multiple Choice)
  May include basic identification of factors affecting labour demand or supply.

• Paper 2 (Structured Questions)
  Frequently includes:

  • Diagram-based analysis (e.g. shifts in demand/supply of labour)

  • Comparative evaluation (why some jobs are better paid than others)

  • Data interpretation with wage figures or employment statistics

  • Use of command words: explain, analyse, discuss, evaluate

Assessment tip: Students must practise drawing and interpreting labour market diagrams, clearly labelling wage and employment axes. Encourage them to consider multiple causes and real-world examples when justifying answers.

Enterprise Skills Integration

Wage determination aligns naturally with core enterprise competencies:

• Decision-Making & Problem-Solving
  Students evaluate the impact of wage policies, strikes, or minimum wage legislation on different stakeholders.

• Commercial Awareness
  Understanding why firms offer certain wages builds insight into how businesses operate and remain competitive in different labour markets.

• Stakeholder Thinking
  Wage setting often reflects tensions between employee expectations, employer budgets, and government policy, encouraging students to consider multiple perspectives.

Tools from the Skills Hub Futures platform reinforce these skills through decision-based simulations and real employer case studies mapped to wage-based decision scenarios.

Careers Links

Wage determination connects powerfully to Gatsby Benchmarks 4, 5, and 6:

• Benchmark 4 – Linking curriculum to careers
  Students learn how economic forces affect job opportunities and earning potential, making lessons immediately relevant to future choices.

• Benchmark 5 – Employer encounters
  Wage policy case studies can be enriched by employer talks or video interviews with professionals in HR, economics, and trade unions.

• Benchmark 6 – Experiences of workplaces
  Tools like Skills Hub Business simulate wage-setting challenges within company roles, offering authentic exposure to workplace decisions.

Relevant careers:

• Labour market economists

• HR and reward specialists

• Trade union officers

• Recruitment consultants

• Policy analysts

By showing students how wages are negotiated, structured, and influenced, this topic prepares them for the practical realities of work.

Teaching Notes

Tips for delivery:

• Use live news examples like NHS strikes or minimum wage announcements to spark debate.

• Flip the classroom: assign real wage data analysis as prep, then explore causation in class.

• Pair with Skills Hub decision tools on stakeholder choices to simulate the impact of wage changes on different roles.

Common pitfalls:

• Students often confuse demand for labour with demand for goods — reinforce the concept of derived demand.

• Wage diagrams are frequently mislabelled — model correct layouts early and often.

• Wage differentials are sometimes oversimplified — prompt students to consider non-monetary factors like job satisfaction, risk, or qualifications.

Extension activities:

• Run a mini mock tribunal where students take on roles (employer, employee, union rep) to negotiate a wage settlement.

• Compare wage structures between countries to explore global labour mobility and government intervention.