Labor Market
The labor market (also referred to as job market) is a market where labor resources are sold in exchange for work. It is a key element of any economy and is elaborately linked to markets for goods, and services.
Unlike other markets, it’s not the firms that are doing the supplying, but the consumer. Businesses are demanding resources that will enable them to produce their goods and services.
Types of Labor Market
There are two types of labor market: external and internal.
External labor market is a part of the labor market covering the circulation of employees between the enterprises. Unlike external, the internal labor market includes jobs and the workforce within one company.
Main ideas
- The labor market refers to the demand for both labor and supply, in which the demand is provided by the employers and the supply is provided by the employees.
- Two of the most important macroeconomic gauges are labor efficiency and unemployment rates.
- In microeconomics those gauges are working hours and individual wages.
The Labor Market at macroeconomic and microeconomic levels
There are several factors that affect supply and demand at the macroeconomic level; these are domestic and international market dynamics, population age, immigration rates and educational attainment. Some of the relevant measures are: productivity and participation rates and total income.
At the microeconomic level firms interact with employees. Employers can hire, fire, raise or cut wages and hours of their employees. The correlation between supply and demand affects employees’ working hours, benefits and salary.
Labor Market in the United States
Despite the fact that the full view of the labor market can sometimes be difficult to grasp, there are data points that enable economists and investors to assess its health. The first factor is unemployment. High rates of unemployment have negative socio-economic consequences, such as increased social tension, decrease in labor activity, increase in mental health conditions among the unemployed population, decline in living standards, production cuts, etc.
In 2020 the unemployment rate in the U.S. was 8.05%,a 4.38% increase from 2019. Such an increase is explained by the coronavirus outbreak that happened in January 2020 worldwide. In 2021 the unemployment rate decreased to 5.46, which was a sign of society adapting to the new working and living conditions. In 2022 the unemployment rate decreased to 3.5%.
Despite a gradual decrease in the unemployment rate, according to the United States Department of Labor, millions of people file unemployment claims every day.
Macroeconomic Theory and The Labor Market
The macroeconomic theory states that wage growth lags productivity growth indicates that the supply of labor has outpaced demand. In this case, downward pressure is put on wages, since workers start to compete for a limited number of jobs.
On the contrary, if demand outstrips supply there is an enormous pressure on wages since workers have more companies to apply for a job, and in this case, employers start to compete for labor.
The Labor Market
The Labor Market is the scope of formation of supply and demand for labor. In other words it is a set of economic relations associated with the sale and purchase of labor resources, where labor is exchanged for wages.
Immigration plays a big role in influencing labor markets all around the world. Meaning, a large flow of immigrants will increase the labor supply, but it will also reduce the wages for unskilled labor.
The age of the population can also affect the supply of labor and wages. Elderly population can decrease the supply of labor and possibly increase wages
However, not all the consequences these factors have are direct. In a country where the number of elderly people is higher, the demand for the goods and services young people use will decline, unlike the demand for healthcare and homecare services. If many people will lose their job, adjusting and changing their career path is going to be much harder for them, especially if there is a high demand for high-skilled healthcare specialists. Consequently, despite the fact that supply exceeds demand in the labor market, demand can still exceed supply in certain sectors.
As technology becomes more and more advanced, it inevitably influences the labor market. Automation is yet another factor that can influence modern labor markets all around the world. Automation becomes a threat to the population as computer programs become more advanced. Some are afraid that it could influence job displacement.
The Labor Market in microeconomic theory
The microeconomic theory analyzes labor supply and demand at the level of the individual firm and worker.
Demand in the labor market is the number of open vacancies in a given period of time at different firms where employers want to hire specialists.
Supply refers to hours that an employee is willing to work. Supply can increase with the increase of wages. People will not be willing to work for $6 an hour, but many would consider working for $22 an hour.
Skills are a key driver of productivity and have a strong link with national economic performance. For an advanced economy, like the United States of America, the availability of relevant skills allows industry to develop in line with its strategic direction.
The Labor supply curve
Labor Supply Curve is a graphical representation of a number of hours that employees are willing to work at different wage levels. It also reflects that the increase in real wages is going to increase the labor supply, while a decrease in real wages is going to decrease it.
Minimum wage and the Labor Market
Minimum wage is the minimum amount of remuneration that an employer is obliged to pay to an employee for their work.
When the unemployment rate is very high, workers’ chances of losing their job are higher and the chances for those who are not working to find a job are lower.
Immigration and the Labor Market
The complexity of the modern economy makes it difficult to measure the effects of migration. Generally, it is thought that immigration causes wages to fall because of the increased supply of labor. Yet, some studies provide a much more complicated picture for economists.
Immigration can affect the economy of any country in a positive way. Immigrants tend to be willing to work for a lower wage. If the opposite is true, then it means that these immigrants are highly-skilled and valuable professionals.
Since new employees are also consumers, immigration can increase both demand and supply for labor.
