Wages are set by demand and supply

1. The wage in any job is settled where the demand for that labour meets the supply of it, as shown in 2.7.1.
2. So a high wage means either strong demand for that work, a limited supply of people able to do it, or both at once.
3. Explaining a wage therefore means explaining a curve, and explaining a wage difference means explaining two.

Labour demand depends on output and productivity

1. Demand for the product: because labour demand is derived, anything that raises demand for the output raises demand for the workers who make it.
2. Productivity: a more productive worker is worth more to an employer, so firms will pay more for labour that produces more per hour, as in 2.6.2.
3. The price of capital: when machinery becomes cheaper firms substitute it for workers, so demand for labour falls.
4. Other employment costs: employer National Insurance and pension contributions add to the cost of a worker beyond the wage, so higher costs reduce the number hired.

Labour supply depends on skills and alternatives

1. Qualifications required: the fewer people who can legally or practically do the job, the smaller the supply and the higher the wage.
2. Length and cost of training: a job needing years of study has a restricted supply, because few are willing to wait and pay for it.
3. How pleasant the work is: unpleasant, dangerous or antisocial hours reduce the number willing to do it at any given wage.
4. Wages elsewhere: workers compare a job with the alternatives, so a rise in pay in one occupation reduces supply to a competing one.
5. The size of the working population: migration, retirement and how many people are economically active all change the total pool available.

Wages differ because the curves sit differently

1. A surgeon is paid far more than a shop assistant because years of training keep the supply of surgeons very small while the demand is high.
2. A refuse collector may be paid more than a receptionist despite needing fewer qualifications, because fewer people are willing to do the work.
3. Comparing two jobs therefore means asking which curve differs and why, rather than which job seems more deserving.

The market is not the only influence on pay

1. A legal minimum sets a floor, so the National Living Wage was £12.71 an hour for workers aged 21 and over from 1 April 2026 (Source: GOV.UK).
2. Where the market wage would be below that floor, the wage is set by law rather than by the two curves.
3. Trade unions and collective bargaining can also raise a wage above the level a single worker could negotiate.