The labour market

What does “working a job” mean to you? Some people might think about work as something they love to do. Others might see work as just a way to earn money. However, people who study the economy, economists, view work as a market. When you hear “market”, you might imagine a place where people go to buy and sell goods like fruits and vegetables.

In a labour market, people buy and sell work. A labour market isn’t a physical place. Instead, it’s a way of thinking about how the supply of and demand for labour functions. Employees have a supply of work that they can do. In the labour market, they are selling work.

Employers have a demand for labour they want done, so in a labour market they compete to hire the best employees. They are buying work. A salary is the price of the work that both the employer and the employee agree on. This agreement is what economists call voluntary exchange, and it is a crucial pattern that keeps the labour market running. Not everyone can access every job.

A fisherman and a teacher, for example, do totally different things, and as a result do not compete for the same jobs. The fisherman competes with other fishermen, and the teacher with other teachers. So each industry has its own labour market. There can be many unemployed fishermen and a shortage of teachers at the same time. There can be a surplus of labour in one market, while there is a shortage in another.

Even within the same industry, there are different labour markets tied to the skills of workers and their location. People with advanced training, experience, or education are considered to be highly skilled. Highly-skilled workers can do more difficult tasks faster. This makes employers want to hire them. The supply of people with advanced skills is usually limited, while the demand is always high.

That’s why skilled workers have access to a higher-paying labour market, one that is often international as companies search for the best talent in the world, regardless of where the workers live. For the most part though, labour markets are still very local. You need to be in a place to get a job there. Local labour markets will differ everywhere you go. One town might have a shortage of jobs - a tight labour market - while a nearby city could have thousands of companies hiring.

Cities have more employers, and as a result more labour markets. But not everyone can access them. Unless workers can travel easily, they are limited to their local labour market. While each labour market is different, they all tend to respond to supply and demand in similar ways. In times of economic trouble, there may be a shortage of jobs and many people might become unemployed.

When this happens, competition among workers becomes more intense. The employers know they will get employees easily, so salaries drop. But when the demand for labour is higher than the supply of workers, it is the employers who compete to hire people. In this scenario, salaries go up because employees have more power to choose who they want to work for. Since most adults participate in the labour market it is a major part of every economy.