Labor Market | Meaning and Definition

The labor market, sometimes known as the job market, is concerned with the supply and demand for jobs. Knowing how these interactions function is crucial in helping companies establish a competent workforce that thrives on economic reform, development, and competition. Employees offer the supply, while employers give the demand.

The link between labor supply and demand may be influenced by a variety of factors, including job opportunities, labor competitiveness, pay data, geography, and working conditions—employers will need to use their local labor market to make selections. 

Functioning Of Labor Market

Under the theories of macroeconomic theory and microeconomics, the operation of a labor market changes.

According to the theory of macroeconomics, wage increase lags productivity growth. As a result, the demand for labor would outnumber the supply. When wages are under pressure, employees fight for a limited number of jobs and employers, with the best of the best being chosen.

When demand exceeds supply, salaries rise because employees have greater negotiating power and are more likely to be able to relocate to higher-paying employment. Employers, on the other hand, must compete for scarce labor.

The microeconomic theory examines the supply and demand for labor at the business and worker levels. As salaries rise, supply, or the number of hours an employee wants to work, drops at first.