Edexcel A · Theme 3: Business behaviour and the labour market · 3.4 Labour market
Edexcel A Economics past paper questions: Labour market
Every Edexcel A question on Labour market from 2017 to 2025: 5 essays, 3 data response questions, 5 short answer questions and 1 multiple choice question. It covers How markets work. Each question links to its paper, mark scheme and examiner report.
SubtopicsHow markets work 3
Essay questions on labour market
Case study: Changes in the nature of UK towns and cities
Evaluate the microeconomic and macroeconomic effects of labour shortages in the UK, or a developed economy of your choice.
Examiner insight
- What to cover
- Cover both sides. Micro: wages bid up in shortage occupations, firms substituting capital for labour, training costs. Macro: cost push inflation, constrained LRAS, lost output, pressure on the fiscal position.
- Watch out
- Only covering the inflation effect. The microeconomic response of firms carries equal weight.
Some occupations in the UK are facing large labour shortages. Hard-to-fill vacancies include qualified chefs, software engineers, construction workers and qualified nurses. (Source: adapted from https://www.ft.com/content/ 36baacce-ddd0-11e8-9f04-38d397e6661c) Evaluate the factors that might influence the supply of labour in an occupation of your choice.
Examiner insight
- What to cover
- Choose one occupation, such as nursing. Explain wage rates and net advantages, the qualifications and training time required, barriers to entry, migration rules, working conditions, and pay in substitute occupations.
- Watch out
- Drifting into demand for labour or minimum wage policy instead of staying on the supply of labour.
Case study: The food delivery industry
Evaluate the microeconomic and macroeconomic effects of significant increases in the minimum wage. Refer to restaurants or other food delivery services in your answer.
Examiner insight
- What to cover
- Cover both sides. Micro: higher labour costs for restaurants and couriers, possible job losses, substitution towards capital. Macro: higher incomes for the low paid, stronger AD, cost push inflation, lower welfare spending.
- Watch out
- Assuming unemployment must follow. Monopsony power means a higher minimum wage can raise both wages and employment.
The national living wage, the minimum wage for 25-year-olds and over, is expected to rise to more than £10.50 an hour in 2024 compared with £8.72 in 2020. The wage does not apply to the UK’s self-employed and ‘gig economy’ workers. Some economists said the increase was ambitious. Business groups warned that employers in sectors such as social care could be hit hard. In large parts of the north of England the living wage has already reached two-thirds of local median earnings, said Professor Shackleton. (Source adapted from: https://www.theguardian.com/uk-news/2020/mar/11/budget-2020-…
Examiner insight
- What to cover
- Set the national living wage above the social care equilibrium wage. Explain excess supply and unemployment, higher costs for providers with capped local authority funding, closures, and substitution of hours or capital for workers.
- Watch out
- Listing the advantages of the living wage when the question asks only for disadvantages.
In July 2017 it was announced that only a third of the BBC’s 96 top earning presenters were women and that its seven highest-paid presenters were all men. According to the High Pay Centre, in 2018, UK chief executives can earn 120 times more than the average full-time worker earning £28 758. With reference to an industry of your choice, evaluate why wage differences exist within the UK labour market.
Examiner insight
- What to cover
- Explain wage differences using marginal revenue product, human capital and skills, elasticity of labour supply, trade union and monopsony power, discrimination, and non-monetary job factors. Apply to a named industry such as broadcasting.
- Watch out
- Explain the mechanisms behind wage gaps rather than listing examples, and apply them to one named industry.
Data response questions on labour market
Case study: Digital markets
With reference to Extract C, examine two effects of increased ‘automation’ on the demand for labour.
Examiner insight
- What to cover
- Demand for labour is derived. Explain capital substituting for routine workers, shifting labour demand left. Then explain the complementary effect, where higher productivity and output raise demand for skilled technical workers.
- Watch out
- Treating automation as only destroying jobs and ignoring the rise in demand for complementary skilled labour.
Case study: The electronics industry
Examine two factors which might influence the supply of labour in the electronics industry.
Examiner insight
- What to cover
- Pick two factors and explain the shift in labour supply for each. Wages and net advantages, the number of engineering and coding graduates, training time, migration policy, and pay in rival technology industries.
- Watch out
- Explaining demand for labour, such as demand for devices, when the question asks about supply of labour.
Case study: The UK economy
Discuss the likely impact of the National Living Wage on the profitability of firms. Use a cost and revenue diagram in your answer.
Examiner insight
- What to cover
- The National Living Wage raises average and marginal costs, so at a given price profit per unit falls. Firms may cut hours, raise prices or substitute capital for labour to protect margins.
- Watch out
- Drawing a labour market diagram instead of the cost and revenue diagram the question demands.
Short answer questions on labour market
Draw a labour market diagram to show the likely impact of the increase in the National Minimum Wage for hospitality employees.
Case study: The cost of living in the UK
With reference to Extract B, examine two likely reasons why wages in supermarkets are above the National Minimum Wage of £10.42.
Examiner insight
- What to cover
- Give two reasons and develop each. Options include competition for workers in a tight labour market, monopsony employers raising pay to attract staff, higher productivity or MRP, and retention or turnover costs.
- Watch out
- Explaining what the minimum wage is instead of why market wages sit above it.
With reference to the above chart, explain one likely effect of migration on employment in the UK.
Explain the likely impact of migration on the wage level of engineers in Poland.
Case study: Hand car wash (HCW) firms in the UK
Discuss the likely effects of changes in the level of migration on firms such as HCWs in the UK. Use a labour market diagram and the information provided to support your answer.
Examiner insight
- What to cover
- Lower migration shifts the supply of labour left, raising wages and cutting employment at HCWs. Higher migration does the reverse. Link to the low skilled, low pay nature of the work.
- Watch out
- Ignoring the instruction to use the data. Application marks need figures or references from the extracts.
Multiple choice questions
- AS Paper 2, June 2024, Q3(a)
Which one of the following can be inferred from the above chart?
Question text is quoted from the question papers, © Pearson Edexcel, for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.