A Level Economics AQA Practice Exam 2026 - Free Economics Practice Questions and Study Guide

A firm is described as a wage maker when it has the ability to influence wage rates within the labor market due to its market power, typically stemming from a degree of monopoly or oligopoly in its industry. This means that the firm can set wages at a level that suits its economic interests rather than merely accepting the prevailing market rate.

In practical terms, this usually occurs in markets where the firm has specific characteristics, such as offering unique working conditions, specialized skills, or attracting talent that is scarce. As a wage maker, the firm can offer higher wages to attract and retain employees or adjust wages based on its demand for labor and ability to pay, making it an active participant in wage determination rather than a passive follower.

This contrasts with firms following the market wage, which cannot influence the wage level due to a competitive labor market where many firms are present. The latter scenario limits a firm's ability to distinguish itself through compensation strategies. Therefore, the nature of being a wage maker revolves around control and impact on wage setting, rather than simply adhering to predetermined market conditions or setting wages only internally.