what is the labour market essay

14.1 The Theory of Labor Markets

Learning objectives.

By the end of this section, you will be able to:

• Describe the demand for labor in perfectly competitive output markets
• Describe the demand for labor in imperfectly competitive output markets
• Identify what determines the going market rate for labor

Clear It Up

What is the labor market.

The labor market is the term that economists use for all the different markets for labor. There is no single labor market. Rather, there is a different market for every different type of labor. Labor differs by type of work (e.g. retail sales vs. scientist), skill level (entry level or more experienced), and location (the market for administrative assistants is probably more local or regional than the market for university presidents). While each labor market is different, they all tend to operate in similar ways. For example, when wages go up in one labor market, they tend to go up in others too. When economists talk about the labor market, they are describing these similarities.

The labor market, like all markets, has a demand and a supply. Why do firms demand labor? Why is an employer willing to pay you for your labor? It’s not because the employer likes you or is socially conscious. Rather, it’s because your labor is worth something to the employer--your work brings in revenues to the firm. How much is an employer willing to pay? That depends on the skills and experience you bring to the firm.

If a firm wants to maximize profits, it will never pay more (in terms of wages and benefits) for a worker than the value of their marginal productivity to the firm. We call this the first rule of labor markets .

Suppose a worker can produce two widgets per hour and the firm can sell each widget for $4 each. Then the worker is generating $8 per hour in revenues to the firm, and a profit-maximizing employer will pay the worker up to, but no more than, $8 per hour, because that is what the worker is worth to the firm.

Recall the definition of marginal product. Marginal product is the additional output a firm can produce by adding one more worker to the production process. Since employers often hire labor by the hour, we’ll define marginal product as the additional output the firm produces by adding one more worker hour to the production process. In this chapter, we assume that workers in a particular labor market are homogeneous—they have the same background, experience and skills and they put in the same amount of effort. Thus, marginal product depends on the capital and technology with which workers have to work.

A typist can type more pages per hour with an electric typewriter than a manual typewriter, and the typist can type even more pages per hour with a personal computer and word processing software. A ditch digger can dig more cubic feet of dirt in an hour with a backhoe than with a shovel.

Thus, we can define the demand for labor as the marginal product of labor times the value of that output to the firm.

On what does the value of each worker’s marginal product depend? If we assume that the employer sells its output in a perfectly competitive market, the value of each worker’s output will be the market price of the product. Thus,

Demand for Labor = MP L x P = Value of the Marginal Product of Labor

We show this in Table 14.2 , which is an expanded version of Table 14.1

Note that the value of each additional worker is less than the value of the ones who came before.

Demand for Labor in Perfectly Competitive Output Markets

The question for any firm is how much labor to hire.

We can define a Perfectly Competitive Labor Market as one where firms can hire all the labor they want at the going market wage. Think about secretaries in a large city. Employers who need secretaries can probably hire as many as they need if they pay the going wage rate.

Graphically, this means that firms face a horizontal supply curve for labor, as Figure 14.3 shows.

Given the market wage, profit maximizing firms hire workers up to the point where: W mkt = VMP L

Derived Demand

Economists describe the demand for inputs like labor as a derived demand . Since the demand for labor is MPL*P, it is dependent on the demand for the product the firm is producing. We show this by the P term in the demand for labor. An increase in demand for the firm’s product drives up the product’s price, which increases the firm’s demand for labor. Thus, we derive the demand for labor from the demand for the firm’s output.

Demand for Labor in Imperfectly Competitive Output Markets

If the employer does not sell its output in a perfectly competitive industry, they face a downward sloping demand curve for output, which means that in order to sell additional output the firm must lower its price. This is true if the firm is a monopoly, but it’s also true if the firm is an oligopoly or monopolistically competitive. In this situation, the value of a worker’s marginal product is the marginal revenue, not the price. Thus, the demand for labor is the marginal product times the marginal revenue.

The Demand for Labor = MP L x MR = Marginal Revenue Product

Everything else remains the same as we described above in the discussion of the labor demand in perfectly competitive labor markets. Given the market wage, profit-maximizing firms will hire workers up to the point where the market wage equals the marginal revenue product, as Figure 14.6 shows.

Do Profit Maximizing Employers Exploit Labor?

If you look back at Figure 14.4 , you will see that the firm pays only the last worker it hires what they’re worth to the firm. Every other worker brings in more revenue than the firm pays them. This has sometimes led to the claim that employers exploit workers because they do not pay workers what they are worth. Let’s think about this claim. The first worker is worth $x to the firm, and the second worker is worth $y, but why are they worth that much? It is because of the capital and technology with which they work. The difference between workers’ worth and their compensation goes to pay for the capital and technology, without which the workers wouldn’t have a job. The difference also goes to the employer’s profit, without which the firm would close and workers wouldn’t have a job. The firm may be earning excessive profits, but that is a different topic of discussion.

What Determines the Going Market Wage Rate?

In the chapter on Labor and Financial Markets , we learned that the labor market has demand and supply curves like other markets. The demand for labor curve is a downward sloping function of the wage rate. The market demand for labor is the horizontal sum of all firms’ demands for labor. The supply of labor curve is an upward sloping function of the wage rate. This is because if wages for a particular type of labor increase in a particular labor market, people with appropriate skills may change jobs, and vacancies will attract people from outside the geographic area. The market supply of labor is the horizontal summation of all individuals’ supplies of labor.

Like all equilibrium prices, the market wage rate is determined through the interaction of supply and demand in the labor market. Thus, we can see in Figure 14.7 for competitive markets the wage rate and number of workers hired.

The FRED database has a great deal of data on labor markets, starting at the wage rate and number of workers hired .

The United States Census Bureau for the Bureau of Labor Statistics publishes The Current Population Survey , which is a monthly survey of households (you can find a link to it by going to the FRED database found in the previous link), which provides data on labor supply, including numerous measures of the labor force size (disaggregated by age, gender and educational attainment), labor force participation rates for different demographic groups, and employment. It also includes more than 3,500 measures of earnings by different demographic groups.

The Current Employment Statistics , which is a survey of businesses, offers alternative estimates of employment across all sectors of the economy.

The FRED database, found in the previous link, also has a link labeled "Productivity and Costs" has a wide range of data on productivity, labor costs, and profits across the business sector.

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What Is the Labor Market?

Understanding the labor market, the u.s. labor market.

• Macroeconomic Theory
• Microeconomic Theory

The Bottom Line

Labor market explained: theories and who is included.

Investopedia / Theresa Chiechi

The labor market, also known as the job market , refers to the supply of and demand for labor, for which employees provide the supply and employers provide the demand. It is a major component of any economy and is intricately linked to markets for capital , goods, and services.

Key Takeaways

• The labor market refers to the supply of and demand for labor, for which employees provide the supply and employers provide the demand.
• The labor market should be viewed at macroeconomic and microeconomic levels because each offers valuable insight into employment and the economy as a whole.
• Unemployment rates and labor productivity rates are two important macroeconomic gauges.
• Individual wages and the number of hours worked are two important microeconomic gauges.
• In the United States, the Bureau of Labor Statistics compiles detailed reports on national and local labor markets.

It's important and useful to study both the macroeconomic and the microeconomic views of the labor market. Each view can inform government and business outlooks, policies, and actions regarding employment. And the labor market plays a major role in any economy.

At the macroeconomic level, supply and demand are influenced by domestic and international market dynamics, as well as factors such as immigration, the age of the population, and education levels. Relevant measures include unemployment, productivity, participation rates , total income , and gross domestic product (GDP) .

At the microeconomic level, individual firms interact with employees, hiring them, firing them, and raising or cutting wages and hours. The relationship between supply and demand influences the number of hours employees work and the compensation they receive in wages, salary, and benefits.

The macroeconomic view of the labor market can be difficult to capture, but a few data points can give investors, economists, and policymakers an idea of its health. The first is unemployment. During times of economic stress, the demand for labor lags behind supply, driving unemployment up. High rates of unemployment exacerbate economic stagnation, contribute to social upheaval, and deprive large numbers of people of the opportunity to lead fulfilling lives.

In the U.S., unemployment was around 4% to 5% before the Great Recession , when large numbers of businesses failed, many people lost their homes, and demand for goods and services—and the labor to produce them—plummeted.

As of April 2023, the unemployment rate in the U.S. is 4.8%. Youth unemployment rate (workers aged 15-24) is 10.2%, the lowest value since 2005.

Labor productivity is another important gauge of the labor market and of broader economic health. It measures the output produced per hour of labor. Productivity has risen in many economies, the U.S. included, due to advancements in technology and other improvements in efficiency.

In the U.S., growth in output per hour has not translated into similar growth in income per hour. In other words, workers have been creating more goods and services per unit of time, but they have not been earning much more in compensation. What is called a productivity gap is created when labour productivity increases more rapidly than wages.

In the U.S. between 1979 and 2021, productivity has increased by 64.6% while hourly salaries have only increased 17.3%, meaning that productivity has grown 3.7 times more than pay.

More Labor Supply Than Demand

The fact that productivity growth has outstripped wage growth means that the supply of labor has outpaced the demand for it.

The Labor Market in Macroeconomic Theory 

According to macroeconomic theory, the fact that wage growth lags productivity growth indicates that the supply of labor has outpaced demand. When that happens, there is downward pressure on wages, as workers compete for a scarce number of jobs and employers have their pick of the labor force.

Conversely, if demand outpaces supply, there is upward pressure on wages, as workers have more bargaining power and are more likely to be able to switch to a higher paying job, while employers must compete for scarce labor.

Factors That Influence Supply and Demand

Some factors can influence labor supply and demand. For example, an increase in immigration to a country can grow the labor supply and potentially depress wages, particularly for unskilled jobs. An aging population can deplete the supply of labor and potentially drive up wages.

These factors don’t always have such straightforward consequences, though. A country with an aging population will see demand for many goods and services decline , while demand for healthcare increases.

Not every worker who loses their job can simply move into healthcare work, particularly if the jobs in demand are highly skilled and specialized, such as those for doctors and nurses. For this reason, demand can exceed supply in certain sectors, even if supply exceeds demand in the labor market as a whole.

Factors influencing supply and demand don’t work in isolation, either. If it weren’t for immigration, the U.S. would be a much older—and potentially less dynamic—society. So while an influx of unskilled workers might exert downward pressure on wages, it likely offsets declines in demand. 

Other factors influencing contemporary labor markets, and the U.S. labor market, in particular, include the threat of automation as advanced technologies gain the ability to do more complex tasks; the effects of globalization as enhanced communication and better transport links allow work to be moved across borders; the price, quality, and availability of education; and a whole array of policies, including the minimum wage.

The Labor Market in Microeconomic Theory

The microeconomic theory analyzes labor supply and demand at the level of the individual firm and worker. Supply—or the hours an employee is willing to work—initially increases as wages increase. No workers will work voluntarily for nothing ( unpaid interns are, in theory, working to gain experience and increase their desirability to other employers), and more people are willing to work for $20 an hour than $7 an hour.

Gains in supply may accelerate as wages increase, as the opportunity cost of not working additional hours grows. However, supply may then decrease at a certain wage level: The difference between $1,000 an hour and $1,050 is hardly noticeable, and the highly paid worker who’s presented with the option of working an extra hour or spending their money on leisure activities may well opt for the latter.

Demand at the microeconomic level depends on two factors: marginal cost of production and marginal revenue product . If the marginal cost of hiring an additional employee, or having existing employees work more hours, exceeds the marginal revenue product, it will cut into earnings, and the firm would theoretically reject that option. If the opposite is true, it makes rational sense to take on more labor.

The neoclassical microeconomic theories of labor supply and demand have received criticism on some fronts. Most contentious is the assumption of rational choice —maximizing money while minimizing work—which to critics is not only cynical but not always supported by the evidence. 

Homo sapiens, unlike Homo economicus , may have all sorts of motivations for making specific choices. The existence of some professions in the arts and nonprofit sector undermines the notion of maximizing utility.

Defenders of neoclassical theory counter that their predictions may have little bearing on a given individual but are useful when taking large numbers of workers in aggregate.

How Does a Minimum Wage Affect the Labor Market?

The effects of a minimum wage on the labor market and the wider economy are controversial. Classical economics and many economists suggest that a minimum wage, like other price controls , can reduce the availability of low-wage jobs. On the other hand, some economists say that a minimum wage can increase consumer spending , thereby raising overall productivity and leading to a net gain in employment.

How Does Immigration Affect the Labor Market?

The effects of immigration are difficult to measure precisely, due to the size and complexity of the modern economy. The classical model of economics predicts that high levels of immigration may cause wages to fall due to an increased supply of labor. However, some studies suggest that immigration can also have a positive effect on aggregate demand, depending on the skillset of the new arrivals. Because new workers are also consumers, the research found that immigration can increase the demand for labor as well as the supply.

How Does the Government Calculate the Unemployment Rate?

The Bureau of Labor Statistics compiles a monthly employment report, based on a survey of around 60,000 representative households in the United States. Data from the survey are used to estimate the employment figures for the entire country. The unemployment rate is based on the percentage of people who are not employed but actively looking for a job, as a percentage of the total labor force. Those who have no job and are no longer looking are not included in the unemployment rate.

The labor market is an economic term for the availability of workers and the cost of employment. It plays a major role in the overall economy. As in other markets, the price for labor is largely determined by supply and demand, although the labor market is also heavily regulated in many countries.

OECD. " Unemployment Rates, OECD - Updated: June 2023 ."

Economic Policy Institute. " The Productivity–Pay Gap ."

William Mitchell et. al. "Macroeconomics." Red Globe Press, 2019.

University of Oxford Migration Observatory. " The Labor Market Effects of Immigration ."

Edgar K. Browning et. al. "Microeconomics: Theory and Applications." Wiley, 2020.

Zafirovski, Milan. “The Rational Choice Generalization of Neoclassical Economics Reconsidered: Any Theoretical Legitimation for Economic Imperialism?”  Sociological Theory , Vol. 18, No. 3, 2000, Pages 448–71.

Center for American Progress. " Higher Minimum Wages Support Job Growth as the Economy Recovers from Covid-19 ."

Federal Reserve Bank of Dallas. " Immigrants in the US Labor Market ."

Bureau of Labor Statistics. " How the Government Measures Unemployment ."

• What Is Unemployment? Causes, Types, and Measurement 1 of 43
• What Does Termination of Employment Mean? 2 of 43
• What Is an Unemployment Claim? 3 of 43
• Unemployment Compensation: Definition, Requirements, and Example 4 of 43
• What Is Severance Pay? Definition and Why It's Offered 5 of 43
• The Layoff Payoff: A Severance Package 6 of 43
• 7 Considerations When You Negotiate Severance 7 of 43
• 7 Effective Ways to Prepare for a Layoff 8 of 43
• Unemployment Insurance (UI): How It Works, Requirements, and Funding 9 of 43
• How to Apply for Unemployment Insurance Now 10 of 43
• Who Doesn't Get Unemployment Insurance? 11 of 43
• What Was Private Unemployment Insurance? 12 of 43
• How to Pay Your Bills When You Lose Your Job 13 of 43
• Can I Access Money in My 401(k) If I Am Unemployed? 14 of 43
• All About COBRA Health Insurance 15 of 43
• Medical Debt: What to Do When You Can’t Pay 16 of 43
• Help, My Unemployment Benefits Are Running Out 17 of 43
• What Is the Unemployment Rate? Rates by State 18 of 43
• How Is the U.S. Monthly Unemployment Rate Calculated? 19 of 43
• Unemployment Rates: The Highest and Lowest Worldwide 20 of 43
• What You Need to Know About the Employment Report 21 of 43
• U-3 vs. U-6 Unemployment Rate: What's the Difference? 22 of 43
• Participation Rate vs. Unemployment Rate: What's the Difference? 23 of 43
• What the Unemployment Rate Does Not Tell Us 24 of 43
• How the Unemployment Rate Affects Everybody 25 of 43
• How Inflation and Unemployment Are Related 26 of 43
• How the Minimum Wage Impacts Unemployment 27 of 43
• The Cost of Unemployment to the Economy 28 of 43
• Okun’s Law: Economic Growth and Unemployment 29 of 43
• What Can Policymakers Do To Decrease Cyclical Unemployment? 30 of 43
• What Happens When Inflation and Unemployment Are Positively Correlated? 31 of 43
• The Downside of Low Unemployment 32 of 43
• Frictional vs. Structural Unemployment: What’s the Difference? 33 of 43
• Structural vs. Cyclical Unemployment: What's the Difference? 34 of 43
• Cyclical Unemployment: Definition, Cause, Types, and Example 35 of 43
• Disguised Unemployment: Definition and Different Types 36 of 43
• Employment-to-Population Ratio: Definition and What It Measures 37 of 43
• Frictional Unemployment: Definition, Causes, and Quit Rate Explained 38 of 43
• Full Employment: Definition, Types, and Examples 39 of 43
• Labor Force Participation Rate: Purpose, Formula, and Trends 40 of 43
• Labor Market Explained: Theories and Who Is Included 41 of 43
• What Is the Natural Unemployment Rate? 42 of 43
• Structural Unemployment: Definition, Causes, and Examples 43 of 43

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An Analysis of the United States’ Labour Market Essay

Introduction, minimum wage, wage inequality, short and long term unemployment, calibration model, inward and outward migration.

From the time when the Great Recession ended, the US economy has steadily grown accumulating up to 8.1 million opportunities; subsequently, collapsing the unemployment rate from 10% to 6.2%.

Despite not reaching its original condition, economic specialists posit that the US labour market is now healthy and likely to achieve its former glory in future. This is attributed to the tactical strategies placed by the federal reserves. One of the prioritised measures in the US Federal Reserve is the minimum wage strategy.

Using sufficient literatures that analyse minimum wage, various authors differ on the extent to which a minimum wage impacts on employment (Abraham and Katz 1986, p. 509). This makes the study on the impact of minimum wage on employment common as well as most controversial in the labour economics field. However, basing the reasoning on both theoretical and econometric principles, it is arguable that the outcome of wage floor should be noticeable in new employment growth than it is in employment level.

According to Raise the Wage (2014), President Barack Obama requested the Congress to consider raising the countrywide minimum wage to $10.10 from the usual $7.25 an hour, as well as signed into law the Executive Order to increase the least earning to $10.10 for the persons employed in fresh federal deals.

Markedly, increasing the national minimum wage is meant to raise the earnings of many workers, as well as to enhance the level of business operations in the US ( Raise the Wage 2014). Most states have the minimum wage at $7.25 on average, with slight positive deviations in a few states.

Substantiating by data analysis of US aggregate employment metrics for the employers’ population in the US, the American job growth radically declined in response to the rise in minimum wage (Abraham and Katz 1986, p. 515). Nonetheless, the data does not show an equivalent cutback in level of employment. Therefore, this illogical effect on employment level is neither a surprise nor a perfect reflection of the effect of minimum wage.

In addition, analysing the negative impact on net job growth establishes that minimum wage is majorly determined by downsize in job creation rather than by rise in job destruction ( Raise the Wage 2014). Therefore, for the US data analysis of the minimum wage, the alterations in the minimum wage have tremendously affected the change in the number of jobs in the economy rather than the turnover for the individuals within existing jobs (Autor 2011, p. 11).

The pronounced inequality of wage as the US data statistics for the last three decades point out can be attributed to the long shift in labour demand in U S. This is ascribed to divergence of employment opportunities across occupations, where employment growth is centred on skilfulness ( Raise the Wage 2014).

Just like in other countries, empirical research shows that high skilled personnel receive lofty wages, while the low skilled receive meagre wages in the US labour market. According to the 2008 census survey, there is a twist in distribution of employment that transverses occupation over the last three decades as opposed to a uniform rise in the previous decades.

Krueger et al. (2014, p. 234) ascertain that in the last decade, there was a high increase in the growth of low-skill jobs because of lower education level in the previous decade. Outstandingly, this employment pattern had great impact on the wage growth. Ultimately, as low skill jobs were characterised with low wages, the polarisation of employment at the lower quadrant reflected on low wages for majority of the US population.

In contrast, the inadequacy of skilled labourers increased their demand, thereby reflecting a higher wage for the skilled jobs. Subsequently, the wage gain increased for the few skilful individuals at the upper quadrant. At the same time, the abundance of unskilled workers led to a drastic drop of wage at the lower quadrant.

Given that the US labour market is driven by the skilfulness factor due to the technological advancements, the wage inequality grew wider with the skilled persons gaining more wealth against their unskilled counterparts who earned too little (Autor 2011, p. 12).

At the same time, the middle class blue-collar jobs drastically disappeared. Considering the available data, the Great Recession has reinforced this US labour market tendency of polarisation in the skilfulness, where high skilled pocket high wage as the unskilled receive low wage rather than redirecting them or reversing these trends (Borjas 2013, p. 36).

Determining the unemployment rate could be determined by different criteria, namely U-3 or U-6. According to economists, U-3 is restrictive; it is inclusive of the individuals actively searching for employment, but cannot find (Autor 2011, p. 13). The other measure, U-6 method, is possibly the most complete criterion in determining the unemployment rate (Autor 2011, p. 13).

This measure take in consideration the marginally attached workers, individuals who looked for work in the recent past even if not actively re-engaged in job search at present, as well as individuals employed on part time basis, but would prefer full time employments (Borjas 2013, p. 83).

Presently several literatures assert that a number of economic observers prophesy the current conventional Phillips curve and Beveridge curve models as putting emphasis on massive price deflations, limited vacancies, and great wage decline, which are all a result of high rate of unemployment witnessed during the Great Recession.

Notably, some of the economists explain the missed Phillips curve based on changes in price increase as well as interactions (Krueger et al. 2014, p. 235). On the other hand, other economists insist that Phillips’ curve price wage is stable only if the short-term unemployment is used, instead of using the total unemployment rate. However, neither of the explanations suggests that long-term unemployment is on the edge of labour work.

Instead, the demand and supply side effect of the long-term unemployment is possibly an approval that supports each other instead of completing the explanation (Krueger et al. 2014, p. 235). This is because the statistical discrimination towards long-term unemployment could possibly discourage the individuals (Autor 2011, p. 16).

Nonetheless, from this analysis, it is obvious that the long-term unemployed are to a lesser percentage connected to the economy as compared to the short-term unemployed. Likewise, the data, posit that the long-term unemployed are likely to pull out from the labour force than the short-term unemployed (Autor 2011, p. 16).

Krueger, Cramer, and Cho (2014, p. 229) affirm that in its frontward direction, the federal reserves have switched the attention from a quantitative unemployment threshold to advanced and wide-ranging measures of the labour market. In relevance to the econometric theory that calls for an alteration in response to a consequence, the US policymakers have improved the deteriorating situations that resulted from the Great Recession (Autor 2011, p. 17).

Profiling both long-term and short-term unemployment

The statistical data on unemployment in the US suggest that for majority of the decades before the Great Recession, the ratio of the unemployed individuals in US revolved between 10% and 20% (Krueger et al. 2014, p. 247). After the Great Recession, the long-term unemployed population escalated to an average of 40%.

This means that the long-term unemployed in the US economy has greater strain at the present economy than ever before (Krueger et al. 2014, p. 248). Summed together, the population of both the long-term unemployed and the short-term unemployed compared to the employed, it is notable that the majority of unemployed are younger, well educated, and unmarried.

In relation to occupation and education level, the mismatch between workers and the kind of duties they undertake are almost similar (Krueger et al. 2014, p. 248). In addition, both seems to have equivalent qualifications, thus any structural problem that leads to long-term unemployment could be due to lack of motivation, self-esteem, or negative attitude of employers who considers long-term unemployment to have knowledge erosion.

Duration of unemployment

Analysing the US unemployment data for the past three decades, it is arguable that there are three possibilities for alteration of the unemployment statistics in relation to duration of the unemployment. In the first scenario, the short-term unemployed have greater chances to transition into long-term employed than the long-term unemployed (Borjas 2013, p. 116).

In the second category, over the entire three decades data, the long-term unemployed are at almost the same range; they are prone to quit the labour force as compared to the short-term unemployed. Lastly, in this scenario, the three decades data imply a drastic crash in labour force depart around recessions for the long-term unemployed than short-term unemployment. Similarly, the data indicate a major fall in job finding measures around recession in the short-term unemployment than in the long-term unemployment (Borjas 2013, p. 127).

Work trends survey for unemployed

Another important aspect in analysing unemployment is the relationship of work trends to the transition rate of unemployed. Against the expectation of many, comparing the short-term unemployment and the long-term unemployment, the gap between the two categories is quite bigger (Autor 2011, p. 18).

The work trend survey results indicate that the possibility for long-term employed to get jobs is lower than the possibility for the short-term unemployed to get both full time and part time jobs (Autor 2011, p. 18).

Regional differences of unemployed within the United States of America

The recent data indicates that while some of the states in the US have fully or partially recovered from the Great Recession, some states are far long behind in the recovery process. This is an indication of the possibility of irregular unemployment due to the economic differences. From the analysis of these data, it is debatable that long-term unemployment is unpredictable even for states that have low level of unemployment (Autor 2011, p. 18).

However, economic factors such as the boom in the energy production in some state like Alaska, Iowa, West Virginia amongst others States have great effect on the general unemployment population (Abraham and Katz 1986, p. 520). The situation is complicated by a twist of scenario. First, in the areas with stronger economy, especially in the energy producing regions, the firms are likely to absorb higher number of workers, hence lowering the unemployment rate.

Alternatively, due to the strong economy, there is the likelihood for majority of the employees to get sustainable income, and, as a result, the long-term unemployed would most probably withdraw from the labour market (Krueger et al. 2014, p. 259). This could subsequently lower the general unemployment level.

The second scenario is that the presence of stronger economies could be indications of a likelihood of getting unemployment. Therefore, even the long-term unemployed might not give up, but instead keep the job hunt (Abraham and Katz 1986, p. 521). This could defiantly reflect into a massive number of unemployed in such regions.

Statistical evidence designates that after the Great Recession, the vacancies and unemployment link known as Berveridge curve curled outwards, as most of the vacancies than predicted were reserved for the high unemployment rate (Krueger et al. 2014, p. 258). Notably, this connection is firm when short-term unemployment rate is used.

This could be possible when the Beveridges curve shifts outwards after the rigorous shock because of slow job growth, an increase in long-term unemployment, a decrease in the entire match effectiveness, as well as a reduction in the number of individuals quitting the labour force (Borjas 2013, p. 169). This is more particular to the long-term unemployed. The unemployment and vacancies path can possibly relax back to the initial Beveridge curve position because of withdrawal of the long-term unemployed from workforce.

Gender discrimination in the US labour market

An analysis of the recent gender employment pattern signifies the occupational distinction based on gender witnessed in the US labour market. Initially, the blue-collar jobs that include crafts and operations were reserved for the male gender, while the female were distinguished with clerical occupations (Krueger et al. 2014, p. 258).

The situation is totally different from the current record. Even though, the contrast in traditional gender domination of occupations is visible, little is known about the cause. However, some labour market scholars believe that this employment disparity is a result of gender differences in job choice. Alternatively, the disparity in the occupancy based on gender could be because of differences in characteristics of the US labour force, such as occupational segregation.

Occupation segregation is the exclusion of workers from certain professions while dominating other occupations. Autor (2011, p. 12) states that over the years, researchers have dwelt on the measures and consequences of occupational segregation in the labour market. The changes witnessed in the characteristics of occupation in the US labour market are due to several factors; however, long-term transformation in occupation is core in these changes (Autor 2011, p. 16).

In this aspect, the growth in women’s labour force is linked to the rise in the ratio of white-collar jobs in the US labour market. Therefore, as more women join the labour market with some having higher educational level than the men counterparts, they get absorbed in the swiftly rising white-collar jobs in the clerical, professional, as well as technical fields (Autor 2011, p. 17).

The ageing population of the US labour market

Statically analysis projects the US’s population to increase by 91 million over the next 4 decades from the 309 million of 2010 to 400 million mark by 2050 (Abraham and Katz 1986, p. 508). Even though this growth is anticipated to take place in larger brackets, the entire growth will be resolute in the ageing bracket.

In essence, this perception implies that the number of people in the ageing group – at the age of 65 and above – will be more than double. This in fact means that the aged population could increase from 13%, according to the 2010 population, to 21% of the total population in the prospected 2050 population (Abraham and Katz 1986, p. 510).

Even though the age bracket of between 20 and 64 that actively engage in workforce labour will also continue to grow, the growth rate in this bracket is much slower as compared to the era when the baby boomer bulge propelled it (Abraham and Katz 1986, p. 511).

Therefore, this population of the working force is likely to reduce in size from 60% of 2010 to 55% in 2050. Notably, the labour force participatory rate in the United States of America is recorded to have dropped tremendously since the occurrence of the Great Recession period of 2007 to 2009. The fall is attributed to three main factors.

According to Abraham and Katz (1986, p. 510), the effect of cyclical from the Great Recession, the ageing population, and a combination of several other minor factors can explain these transitions. However, of the two identified factors, ageing population to date cater for the better part of the effect.

Government policies to increase labour market flexibility

Labour market flexibility has different definitions with varied meanings to different people. Whereas in some parts of the world, labour market flexibility means a room for employers to fire employees to reduce wages (Krueger et al. 2014, p. 255). In the US, it is a virtue aimed at empowering employees.

In the olden days, low unemployment coupled with edgy labour markets forced several authorities and the policymakers to formulate numerous programmes to ensure that the labour markets are more flexible and effective. Some of these policies aimed at intensifying labour work force. In the US, policies to increase labour market flexibility aimed at extending the service to incorporate the identification of both the long-term and the immediate needs of the labour market (Krueger et al. 2014, p. 258).

This included working with the employers to screen and select trainees that would assist in the immediate demand of the US labour market. To achieve this target, the US Federal Government established a professional training centre for the white-collar job opportunity. In addition, in the midst of transformation to technology-based operations, this move aimed at strengthening workers’ training programmes to produce capable graduates for the demanding labour workforce (Krueger et al. 2014, p. 259).

Most of these policies aimed at employing the citizens in the job superfluous sectors. While, the original policies at training and including new employees in the industry, the recession later changed the idea to policies that meant to retain the employed for longer duration as possible (Krueger et al. 2014, p. 261).

In this effort, the US Federal Government initiated programmes advocating for short-term work, in which workers enjoyed partial unemployment benefits even after reducing their working hours to avoid lay-offs. Equally, the Federal Government provided employers with subsidiaries in order to retain workers who would otherwise had been laid off. In response, the US model of labour market flexibility proved to be the most probably response to the growing unemployment dilemma (Krueger et al. 2014, p. 263).

The United States’ labour market is illustrious for outward migration of skilled workers for permanent or temporary work. Similarly, the US’s labour market assimilates a number of outward immigrants who are majorly unskilled workers. According to Borjas (2013, p. 67), immigration has both its merits and demerits; it can drain the country of the skilled labour workforce, thereby impacting on the workforce negatively, and, at the same time, adding to their incomes.

Alternatively, importation of unskilled workers in the country increases competition, thus raising the level of unemployment in the country. Although exportation of skilled workers that is dominant in the America’s labour market might lead to brain drain, it is arguable that temporarily employed workers could as well bring with them new ideas to their country upon their return (Borjas 2013, p. 87).

These efforts by the Federal Government intended to create policies that could increase labour market flexibility aiming at strengthening the US internal labour market (Krueger et al. 2014, p. 295). Even though some of these policies allow employers to lay off workers, their ultimate goal is to generate additional job opportunities at the expense of high living standards. From this research, it is fair to argue that both the outward and inward migration of the US population has benefit to the US labour market.

For the outward migration, this trend eases competition in the local market, thus maintaining the high level of demand for the expertise skills. The trend can maintain the wage gap in the country. Besides, this helps in reducing the unemployment rate in the robust US labour market.

For the inward migration, the high number of the unskilled employees increases competition for the unskilled job opportunities (Borjas 2013, p. 90). This helps the Federal Government in maintaining low wage for the unskilled workers, hence impacting on the general labour market benefits.

Abraham, K. and Katz, L.F 1986, ‘Cyclical Unemployment: Sectorial Shifts or Aggregate Disturbances?’, Journal of Political Economy, vol. 94, no. 1, pp. 507-522.

Autor, D 2011, ‘The polarization of Job opportunities in the US labour market: Implications for employment and earnings’, Journal of community investment, vol. 23, no. 2, pp. 11-18.

Borjas, G. J 2013, Labor economics , McGraw-Hill, New York.

Krueger, B., Cramer, J., and Cho, D 2014, ‘Are the long-term unemployed on the margins of labour market?’, Brookings Papers on Economic Activity , vol. 17, no. 9, pp. 229- 302.

Raise the Wage 2014. Web.

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An Assessment of the U.S. Labor Market

The economic shock caused by the COVID-19 pandemic and the public health measures needed to contain it had an unprecedented impact on the U.S. labor market. The unemployment rate jumped during the early months of the pandemic, and other measures of labor input—such as payroll employment and hours worked—declined dramatically. From February to April 2020, the unemployment rate increased from 3.5% to 14.8%. Over that same period, payroll employment declined by 22.4 million jobs, and total hours worked declined by 17%.

While the shock was immediate and large, the economy is recovering at a swift pace, as vaccines bring the public health crisis under control. The speed of today’s recovery is much faster than with many past economic shocks, which were caused by underlying weaknesses in the economy, as in the financial crisis of 2007-09. How far along we are with the U.S. labor market recovery can be difficult to determine, however, especially since some of the economic data have not aligned with anecdotal information from businesses.

So, how do we assess the state of the U.S. labor market?

Output vs. Labor Market

In the second quarter, real gross domestic product (GDP) is likely to surpass its previous peak level reached in the fourth quarter of 2019. This suggests the recession and the recovery period are behind us, and that the U.S. economy is moving into the expansion phase of the business cycle during the current quarter.

While real GDP is poised to return to and surpass its previous peak, many measures of the labor market remain below their previous peaks, as discussed below. How could that be? One reason is likely due to the composition of the pool of workers. Many of the workers most disrupted by the pandemic were in “high physical contact” jobs, which tend to be lower-wage jobs. In contrast, high-wage workers have been more likely to be able to continue working—and possibly with higher productivity. This could explain how the economy is able to produce as much output as before the economic downturn with fewer total employed.

Common Measures of Labor Market Performance

A common way to gauge how the labor market is doing is to count the number of people employed. Payroll employment for April 2021 remained 8.2 million below its February 2020 level, suggesting that the labor market recovery is far from complete. Another way is to count hours worked. As of April 2021, total hours worked remained about 4% below their pre-pandemic level.

Another consideration when looking at the number of jobs is that labor force participation has been trending downward since 2000. The overall labor force participation rate is projected to continue declining from 2019 to 2029, according to the Bureau of Labor Statistics’ projections released in September 2020 and discussed in this Monthly Labor Review article . Relative to a simple trend line drawn from 2000 to the present, the labor force participation rate was above trend toward the end of the pre-pandemic expansion but is now back on trend, as shown in this FRED graph . During the pandemic, people who dropped out of the labor force include some workers close to retirement who may have decided to go ahead and retire. These workers—especially ones who benefited from increases in the stock market and housing wealth—may be less likely to come back into the labor market once the pandemic ends.

Given the longer-run downward trend in labor force participation combined with retirees who have left the labor force and are unlikely to rejoin it, it is not clear that we should expect labor force participation—and therefore employment—to return to pre-pandemic levels.

Alternative Measures of Labor Market Performance

While labor input remains lower than before the pandemic by some measures, anecdotal reports from businesses suggest that hiring workers is difficult in the current environment. How can we reconcile these two observations? Additional measures of labor market performance can help provide a more comprehensive reading of the state of the labor market than simply looking at the number of jobs or hours worked.

One measure of labor market tightness used in the academic literature is the ratio of officially unemployed workers to job openings . This ratio is approaching an all-time low. In March, it was 1.2, which is lower than during the expansion before the 2007-09 recession but not as low as during the later years of the pre-pandemic expansion, when it was below 1. Nevertheless, the latest ratio suggests a very tight labor market, which would be consistent with anecdotal reports that it is hard to hire workers.

Broader measures of labor market performance—such as indicators that take multiple aspects into account—are also useful to examine. The level of activity indicator from the Federal Reserve Bank of Kansas City, for instance, suggests current labor market conditions are markedly better than those following the 2007-09 recession.

Alternative measures of labor market performance help reconcile the anecdotal reports we are hearing from businesses with what we are seeing from more traditional labor market indicators.

As the pandemic wanes, as more schools reopen to in-person instruction and as disrupted workers’ pandemic-related assistance comes to a close, more people will want and be in a position to accept jobs. The number of unemployed workers per job opening suggests that many of these workers should be able to find a job, which is what I expect to happen in the coming quarters.

• The overall labor force participation rate is projected to continue declining from 2019 to 2029, according to the Bureau of Labor Statistics’ projections released in September 2020 and discussed in this Monthly Labor Review article .

James Bullard served as president and CEO of the Federal Reserve Bank of St. Louis from April 1, 2008, to July 13, 2023. In this capacity, he oversaw the activities of the Eighth Federal Reserve District and was a participant on the Federal Open Market Committee. More about Bullard .

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• Relationship between labour market regulations and informalities: What is the impact of labour market regulations and institutions on informalization in developing countries? Which LM regulation may impact on the supply side to move from informal to formal economy?
• What is the role of ALMPs and how can they be designed to have the most positive effect on labour markets in different regional context?
• What are the (pre)conditions for having flexicurity system in place: is flexicurity valid only for high income countries?
• How can the policy mixed be better targeted to address the different needs of vulnerable groups? How to reduce the dichotomy between more protected workers (insiders) and the more precarious ones (outsiders)?

Key resources

The doing business indicators : measurement issues and political implications.

01 May 2007

Economic and Labour Market Paper 2007/6

Active labour market policies around the world. Coping with the consequences of globalization. (Second edition)

30 April 2008

This revised and updated edition provides an authoritative account of how active labour market policies (ALMPs) can help make globalization work better in the interest of workers around the world.

The employment effects of North-South trade and technological change

01 June 2008

Employment Working Paper No. 22

Security in labour markets : combining flexibility with security for decent work

01 October 2007

Economic and Labour Market Paper 2007/12

Labour market regulation and economic performance : a critical review of arguments and some plausible lessons for India

01 January 2008

Economic and Labour Market Paper 2008/1

In defence of labour market institutions. Cultivating justice in the developing world

21 February 2008

Though labour market regulations have been blamed for the poor economic performance of many developing countries, the evidence on which this argument rests is weak. Rather than constraining economic development, labour market institutions, including the laws that regulate the labour market, are important for both economic growth as well as the well-being of the workforce. Through a survey of different labour market institutions in developing countries, this volume reaffirms the importance of labour market institutions in this era of globalization.

Flexicurity: A relevant approach in Central and Eastern Europe

25 January 2007

This book argues, with case studies contributed by outstanding national experts, that the flexicurity approach is the most relevant for Central and Eastern European countries and suggests appropriate reforms of economic policy, institutional framework of the labour market, labour market policy and education and social policies in this region.

Is Asia adopting flexicurity? : A survey of employment policies in six countries

01 May 2008

Economic and Labour Market Paper 2008/4

The global employment challenge

This volume offers an in-depth analysis of the state of employment in the world today, providing a detailed and comprehensive picture of the serious challenges faced by today's policy-makers...

L'intermédiation sur le marché du travail dans les pays du Maghreb. Etude comparative entre l'Algérie, le Maroc et la Tunisie

09 February 2006

Au cours de ces dernières années, l'Algérie, le Maroc et la Tunisie ont connu d'importantes mutations de leur situation de l'emploi, avec notamment l'arrivée chaque année sur le marché du travail d'un nombre considérable de jeunes, l'essor de l'activité des femmes et l'accroissement des licenciements résultant des restructurations économiques, en particulier dans le secteur public. Ce livre analyse en les comparant, les politiques et institutions du marché du travail de ces trois pays, et fait des recommandations en vue d'en améliorer le fonctionnement. Il conclut en particulier à la nécessité de renforcer le rôle des partenaires sociaux, à l'intérêt d'élaborer des plans d'action nationaux pour l'emploi, ainsi qu'au besoin d'améliorer la gouvernance des politiques de l'emploi.

What You Need to Know About the Labor Market

More than 300,000 jobs were added in March. Here’s what you need to know.

4 Takeaways From the March Jobs Report

John Moore | Getty Images

Construction workers prepare to lift a new pedestrian bridge into place at the Stamford Transportation Center, Aug. 26, 2023, in Stamford, Conn.

It happened again. The monthly jobs report number for March surpassed even the wildest expectations, coming in at 303,000 compared to estimates that had been around 200,000.

Jobs were plentiful, while wages rose but not at a pace to cause inflation . The unemployment rate, at 3.8%, was modestly lower than the 3.9% rate in February.

“Unemployment has been at or below 4% for 27 months running, the longest such strength since the late 1960s,” said Elise Gould, senior economist at the Economic Policy Institute.

The Best Cartoons on the Economy

Here are four takeaways:

Immigration is Fueling Job Growth – and the Economy

Growth in the labor force is contingent on two factors: increasing the participation rate of the population available to work and increasing the population itself. America’s population, however, is aging and the birth rate is below the level needed to replace those who die. Yet, the labor force has grown steadily over the past couple of years.

The answer to the puzzle of how it did that is immigration. The Congressional Budget Office now believes that there was an addition of 3.3 million immigrants in 2023 – more than three times the estimate made in 2019.

“Faster population and labor force growth has meant that employment could grow more quickly than previously believed without adding to inflationary pressures,” according to a recent report from The Hamilton Project at the Brookings Institution.

In addition, the report by Wendy Edelberg and Tara Watson found that this immigration boosted consumer spending in recent years, adding 0.1% to gross domestic product each of the past three years.

The Increase in Hiring Is Broad

The health care industry led the gains in hiring in March, adding 72,000, followed closely by government jobs, at 71,000. Both had been battered during the COVID-19 pandemic and struggled to replace lost workers, whether because of health concerns or wages that could not keep up with other industries. Leisure and hospitality continued its rebound, adding 49,000, and even construction showed impressive gains of 39,000 even as interest rates crimped the housing market.

The diffusion index in March was 59.4 and it has been around 60 since the beginning of the year. The index measures the percentage of industries hiring or with unchanged employment levels against those with decreasing employment. A number above 50 means more industries are hiring than not.

Wages Are Rising, Good for Workers, But Not So Much as to Fuel Inflation

Average hourly earnings grew at a 4.1% annual rate in March, down from 4.5% at the start of the year. With consumer inflation currently 3.2% annually, that means workers are seeing gains in real income.

“The reduced pace of wage gains will alleviate some concerns of reignited inflation driven in part by the strong labor market,” said Nick Bunker, director, North American research at Indeed. “And while it has slowed, wage growth remains faster than the pace of inflation, insulating workers from undue harm.”

A Rising Tide Is Lifting Many Boats

The surge in employment has benefited many groups who either have historically been left behind in the labor market or were disproportionately affected by the pandemic.

In the key age group of 25-54, the percentage of Blacks working reached 77.7% in 2023, surpassing its previous high in 1999, while for Hispanics that number hit 77.9%, beating the prior high of 77.4% in 2019.

Women, meanwhile, have recovered the ground they lost during the pandemic, when many were forced to leave the labor force to care for children at home as schools closed or taking care of elderly parents. They also suffered disproportionately as traditional sources of hiring for women in the leisure and hospitality and health care sectors closed down.

While the overall participation of women in the labor force has bounced back strongly, the story is even better for college-educated women. The percentage of prime age, college-educated women in the workforce hit an all-time high of 75.3 in late 2023 and currently hovers at 75.

Whether the trends in improvement among various demographics will continue remains to be seen, as those who have been marginalized in the past are often the first to feel the cutbacks during a recession. But, for now, the increased employment and rising wages is a good tale for the job market.

“Things have gotten better for everyone,” says Jane Oates, senior policy advisor at WorkingNation and former Labor Department official.

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Example Of Essay On Labor Market

Type of paper: Essay

Topic: Market , Social Issues , Workplace , Marketing , Unemployment , Employee , Salary , Employment

Words: 1500

Published: 12/28/2019

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Labor Market

The labor market is a nominal market where workers seek work in exchange for payment; employers seek for willing individuals to work. The wage rates are usually determined by the labor market forces of demand and supply. Labor markets could be national, local or international. All the three scopes of labor markets are composed of small labor markets. The small markets interact in terms of aspects such as skills, qualifications or geographical locations. The labor markets rely on the information exchange between potential employees and employers concerning wage rates, competition levels, and conditions of employment and the location of the jobs.

The labor markets all over the world face various issues. Some of the most common labor issues include unemployment, employment, wages and participation rates. The recent changes in population trends have led to an ageing workforce and the composition of people seeking employment keeps changing. In most cases, outcomes in the labor markets are affected by processes and institutions of collective bargaining such as trade unions and employer’s organizations.

Unemployment is a major issue in the labor market because it influences even the people who are employed. Unemployment is the number of people who part of the labor force but are not employed at that particular time. Unemployment rate is the unemployed people divided by the economy’s total labor force. Therefore, a high unemployment rate implies that a big percentage of the labor force is unemployed. There are four kinds of unemployment; structural unemployment, frictional unemployment, demands deficient unemployment and natural rate unemployment.

Frictional unemployment is caused by the time taken to get and settle in new jobs. Therefore, it is a temporary unemployment reflector. Structural unemployment is caused by the failure to match the demands of employers with the attributes of employees such as skills. If an employer does not find the qualities he wants in employees, he will not employ any of the applicants. Natural rate of unemployment is the total of structural and frictional unemployment. However, this kind of unemployment does not include unemployment caused by factors such as recessions. Demand deficient unemployment is unemployment as a result of insufficient demand for labor services by employers in that economy.

Unemployment leads to a skewed labor market because it influences the wage rates in the economy. Wage rates are determined by demand and supply of labor services. When the rate of unemployment is so high, the supply for labor services will be higher than the demand. Employers take advantage to pay less for employee services. When the chances of getting employed are very slim, job seekers may decide to take lower pay than normal in order to increase their chances of getting employed. This causes ethical issues in the labor market as well as destabilizing the market.

There are several causes of unemployment in an economy. One such cause is the rapid increase in population. If population increase is higher than the rate of economic growth or industrialization, there is likely to be an employment crisis. Unemployment can also be caused by the qualification levels demanded by employers. At times the level of education or the skills of potential employees are below the employer expectations. This may prompt employers to import labor force while the individuals in the economy remain unemployed. Unemployment may have devastating effects on the economy because it could also lead to social evils such as theft, robbery and many others.

Wages is another major factor in the labor market. Wages are determined by the marginal revenue product. An employee who contributes a lot of revenue to the employer earns more than one who contributes less. For instance, a chef and a marketing manager in a five star hotel and resort earn different wages. The manager contributes more revenue to the hotel than the chef hence the wage difference. Wages in the labor market can also be influenced by demand and supply. The employers can decide to offer high wages to attract employees from other competitor employers. This occurs in cases where the skills and attributes of employees are rear especially in technically demanding jobs. The employers could also set the wage rates very low because of the high unemployment jobs. This is because the supply for labor services is high hence; the job seekers will have no option but to take up the low paying jobs.

The wage rates influence the amount of work an employee is willing to work per day. Wage rates influence employees’ decisions on work in two ways. When wage rates are reduced, the employee may decide to increase their work hours to compensate for the lost utility or income. The employees will increase their work hours if they believe it increases their utility. To raise their utility levels back to their desired levels, employees may be inspired to work for longer hours per day. However, if the employees feel that their utility levels are not affected by further working hours, they may opt to increase their leisure time. This is when they feel that the wages they earn for extra work hours do not increase their utility as much as if they allocated that time to leisure. Therefore, employee preference plays a big role when deciding the amount of time allocated to leisure and work.

There are several kinds of challenges in the labor market. One such challenge is the matching of jobs and employee skills. The labor market can only function efficiently when the demand matches the supply. However, the demand in the labor case does not mean the people who are willing to work for a certain amount of wages. It means the people with the required skills and qualifications willing to work at a given wage rate. This turns out to be a challenge because in some cases the qualifications the employers are seeking are not available among the labor force or are very few. In such cases, employers have to incur high costs to train their own employees or hire the few available people who qualify and pay them very high wages in order to stop them from moving away to work for rival employers.

In order to avoid cases of mismatch between skills and jobs, the education system can be revamped to incorporate more technical studies. The students, who will be part of the labor force in the near future, will learn a wider variety of skills to meet the employers’ demands. There is also need for the wage rates to be determined based on comprehensive and fair criteria. This will help avoid cases where employers underpay their workers or where workers demand excessive pay without substantial concerns.

Other challenges experienced in the labor market include the issue of immigrants. Immigrants pose a threat to the balance in the labor market. They increase the rate of unemployment in the economy. The fact that immigrants could be willing to get meager wages for any job will destabilize the wage rates in the economy. Another challenge is the gender imbalances in the labor market. Gender imbalance has always benefitted male employees. However, employers have started considering gender balance as one of the important issues to consider when employing new workers. Any other form of discrimination on the basis of age, color, race and nationality are also issues that need to be addressed by employers to promote fairness and professionalism in the labor market.

Therefore, the labor market is composed of three major factors; wages, employment and unemployment. Employers seek for individuals who can perform well at the lowest possible wage while job seekers look for employers who can pay them the highest income possible for their services and skills. Therefore, the labor market also has equilibrium where employers and job seekers agree on a certain wage rate. The outcomes of labor market are determined by institutions such as trade unions and employer organizations. Unemployment can result from several reasons and it has negative effects on the labor market. Wage rates are influenced by employers, trade unions and demand and supply forces of the labor market. Challenges in the labor market include gender imbalance, mismatch between jobs and required skills, low wage rates and discrimination on the basis of nationality or race.

Auer, P., Efendioǧlu, Ü., & Leschke, J. (2005). Active Labour Market Policies Around The World: Coping With The Consequences Of Globalization (illustrated ed.). Geneva: International Labour Organization.

Dixon, T., & O'Mahony, J. (2010). The Market Economy Workbook: Year 11 Preliminary Economics (4, revised ed.). Sydney: Pearson Education Australia.

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Strong US labor market underpins economy in first quarter

• Medium Text
• Nonfarm payrolls increase 303,000 in March
• Unemployment rate falls to 3.8% from 3.9%
• Average hourly earnings rise 0.3%; up 4.1% year-on-year
• Average workweek rebounds to 34.4 hours from 34.3 hours

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Stocks tumble, dollar firms amid geopolitical risk, mixed central bank views

U.S. stocks sold off sharply on Friday while the dollar jumped as investors grappled with rising geopolitical tensions and persistent inflation that could lead to diverging monetary policy between the U.S. and Europe.

What the new Goldilocks job market means for you

• Indeed's Nick Bunker said we're settling into a time of "a more boring labor market."
• Business Insider looked at how components of the labor market have settled down, like wage growth.
• Bunker said "Job seekers still have some bargaining power," but he added, "more employees are staying put."

If you just recently entered the labor force, you may be curious what happened to the sky-high job openings , the massive number of people quitting during the Great Resignation , and hot wage growth .

Well, the labor market is looking more like the healthy but boring era of 2018 or 2019, Nick Bunker, economic research director for North America at the Indeed Hiring Lab, told Business Insider. That's opposed to the wild swings we saw during the COVID-19 pandemic.

Bunker said we're seeing less drama in jobs data.

"That's a good thing in my view," Bunker said, given "an incredibly dramatic" few years.

Job growth is still doing great though; the US just added 303,000 jobs in March , although that's a slower pace than during the height of the pandemic recovery.

Wage growth has slowed. The share of Americans working or looking for work has held mostly steady since spring 2023. Job openings have also dropped — and have been at a rate of 5.3% for three straight months. The number of layoffs and discharges have been low.

And that more boring but steady labor market could be great news for workers and job seekers. Julia Pollak, ZipRecruiter's chief economist, told Business Insider the minimal changes are great amid a labor market that's resilient, stable, and robust.

"Everything is holding on better than most people had predicted," Pollak said.

Pollak pointed to employment strength in construction and manufacturing. Construction employment for March was 7.8% higher than the pre-pandemic level in February 2020. Manufacturing employment was 1.4% higher, and its employment was unchanged from this past February to this past March.

The long-feared recession following the wild swings of the early pandemic years has yet to emerge and may not even be on the horizon. "I think stability at a time of high interest rates and restrictive monetary policy expected to lead to losses and declines is something to be celebrated," Pollak said. "And, most of the small changes lately have been in the right direction."

The US could be in a Goldilocks job market. The four charts below show what that looks like.

Job quitting

People looking for a new job have bargaining power , but workers are more likely to stick around their current gigs.

"Job seekers still have some bargaining power but are less willing to demonstrate that power by leaving their jobs," Bunker said. "With fewer new job opportunities and less of a pay bump for switching roles, more employees are staying put. However, layoff rates are still low, so workers have robust job security compared to pre-pandemic levels."

Related stories

Newly released data for February showed the US quits rate had been 2.2% for four straight months. This rate has cooled down from 3.0% in April 2022. There were 3.5 million quits in February, which the BLS news release noted this metric "was little changed."

Wage growth

Average hourly earnings increased 4.1% from March 2023 to this past March, lower than the year-over-year increase of around 6% in March 2022.

Despite that slowdown, wages have recently been growing faster than prices, meaning workers have more buying power.

"That means real money in the pockets of working families," Julie Su, acting secretary of labor, told Business Insider. "It's exactly what we'd want to see."

Inflation in March , as measured by the year-over-year percent change in the Consumer Price Index, ticked up a little last month, but remains less of a problem than last year. It climbed 3.5% from March 2023 to March 2024, compared to a 3.2% increase from February 2023 to February 2024.

Given moderating wage growth, the Fed could be more inclined to lower interest rates later this year. Pollak said the cooler wage growth is "good news for a Fed that's still battling inflation."

Job switchers are seeing higher wage growth than people staying, according to the 12-month moving average of median wage growth from the Atlanta Fed's Wage Growth Tracker . Wage growth has slowed, though, for both job switchers and stayers.

"Nominal wage growth may have slowed, but real wage growth — which is what really matters for workers' purchasing power — remains positive and high," Pollak told BI. "Job switchers and current workers are still experiencing solid real wage growth and have clearly retained much of the leverage gained during the pandemic. They are getting recruited, negotiating their job offers, and are receiving counteroffers from old employer's intent on retaining them at historically high rates."

Unemployment insurance claims

Initial claims for unemployment insurance can be a helpful layoff metric, spiking when lots of people lose their jobs. Right now, the boringly low rate of those initial applications for benefits suggests that any kind of large-scale layoffs still have yet to emerge.

Initial claims decreased from the week ending March 30 to the week ending April 6. In general, initial claims have been low so far this year compared to the high level of weekly claims during the pandemic .

"Although there is plenty of speculation that employment has slowed down, recent numbers, including job openings as well as initial jobless claims, continue to indicate that the US labor market has remained stable," Eugenio Alemán, Raymond James' chief economist, said in a note earlier this month.

Unemployment

Back in January 2021 the unemployment rate was 6.4% after spiking into the double digits during the pandemic shutdowns in spring 2020. It has cooled down to 3.8% this past March, just above the historically low rates seen through most of the last two years.

Additionally, the number of people who went from being employed to unemployed has not seen too dramatic of a change; this number was around 1.5 million for each of the past few months.

So what will happen to the Goldilocks job market?

"It would be nice to live in a world where we have low unemployment and there's steady, consistent gains in wage growth and more people coming into the labor market," Bunker said. "So hopefully, fingers crossed, dramatic days are behind us and we can see some strong gains for workers, for job seekers. But, not in the way that feels discombobulated."

While openings, wage growth, and the hires rate have cooled, the overall labor market can be described as more Goldilocks-like, or not too hot and not too cold.

"It's a labor market that has strength, and there's a path ahead of it where it can continue to grow in a sustainable manner," Bunker said.

Juliana Kaplan contributed reporting.

Watch: Nearly 50,000 tech workers have been laid off — but there's a hack to avoid layoffs

• Main content

‘The way to solve an inflation crisis is to endure an immigration crisis’: The mystery in the labor market finally gets explained

Having fled economic and political chaos in Venezuela, Luisana Silva now loads carpets for a South Carolina rug company. She earns enough to pay rent, buy groceries, gas up her car — and send money home to her parents.

Reaching the United States was a harrowing ordeal. Silva, 25, her husband and their then-7-year-old daughter braved the treacherous jungles of Panama’s  Darien Gap , traveled the length of Mexico, crossed the Rio Grande and then turned themselves in to the U.S. Border Patrol in Brownsville, Texas. Seeking asylum, they received a work permit last year and found jobs in Rock Hill, South Carolina.

“My plan is to help my family that much need the money and to grow economically here,” Silva said.

Her story amounts to far more than one family’s arduous quest for a better life. The millions of jobs that Silva and other new immigrant arrivals have been filling in the United States appear to solve a riddle that has confounded economists for at least a year:

How has the economy managed to prosper,  adding hundreds of thousands of jobs , month after month, at a time when the Federal Reserve has aggressively raised interest rates to fight inflation — normally a recipe for a recession?

Increasingly, the answer appears to be immigrants — whether living in the United States legally or not. The influx of foreign-born adults vastly raised the supply of available workers after a U.S. labor shortage had left many companies unable to fill jobs.

More workers filling more jobs and spending more money has helped drive economic growth and create still-more job openings. The availability of immigrant workers eased the pressure on companies to sharply raise wages and to then pass on their higher labor costs to their customers via higher prices that feed inflation. Though U.S. inflation remains elevated, it has plummeted from its levels of two years ago.

“There’s been something of a mystery — how are we continuing to get such extraordinary strong job growth with inflation still continuing to come down?’’ said Heidi Shierholz, president of the Economic Policy Institute and a former chief economist at the Labor Department. “The immigration numbers being higher than what we had thought — that really does pretty much solve that puzzle.’’

While helping fuel economic growth, immigrants also lie at the heart of an incendiary election-year debate over the control of the nation’s Southern border. In his bid to return to the White House, Donald Trump has attacked migrants in often-degrading terms,  characterizing them as dangerous criminals  who are “poisoning the blood” of America and frequently invoking  falsehoods about migration . Trump has vowed to finish building a border wall and to  launch the “largest domestic deportation operation  in American history.” Whether he or President Joe Biden wins the election could determine whether the influx of immigrants, and their key role in propelling the economy, will endure.

The boom in immigration caught almost everyone by surprise. In 2019, the Congressional Budget Office had estimated that net immigration — arrivals minus departures — would equal about 1 million in 2023. The actual number, the CBO said in a January update, was more than triple that estimate: 3.3 million.

Thousands of employers desperately needed the new arrivals. The economy — and consumer spending — had roared back from the pandemic recession. Companies were struggling to hire enough workers to keep up with customer orders.

The problem was compounded by demographic changes: The number of native-born Americans in their prime working years — ages 25 to 54 — was dropping because so many of them had aged out of that category and were nearing or entering retirement. This group’s numbers have shrunk by 770,000 since February 2020, just before COVID-19 slammed the economy.

Filling the gap has been a wave of immigrants. Over the past four years, the number of prime-age workers who either have a job or are looking for one has surged by 2.8 million. And nearly all those new labor force entrants — 2.7 million, or 96% of them — were born outside the United States. Immigrants last year accounted for a record 18.6% of the labor force, according to the Economic Policy Institute’s analysis of government data.

And employers welcomed the help.

Consider Jan Gautam, CEO of the lodging company Interessant Hotels & Resort Management in Orlando, Florida, who said he can’t find American-born workers to take jobs cleaning rooms and doing laundry in his 44 hotels. Of Interessant’s 3,500 workers, he said, 85% are immigrants.

“Without employees, you are broken,” said Gautam, himself an immigrant from India who started working in restaurants as a dishwasher and now owns his own company.

“If you want boost the economy,” he said, “it definitely needs to have more immigrants coming out to this country.”

Or consider the workforce of the Flood Brothers farm in Maine’s “dairy capital’’ of Clinton. Foreign-born workers make up fully half the farm’s staff of nearly 50, feeding the cows, tending crops and helping collect the milk — 18,000 gallons each day.

“We cannot do it without them,” said Jenni Tilton-Flood, a partner in the operation.

For every unemployed person in Maine, after all, there are two job openings, on average.

“We would not have an economy, in Maine or in the U.S. if we did not have highly skilled labor that comes from outside of this country,” Tilton-Flood said in a phone interview with The Associated Press from her farm.

“Without immigrants — both new asylum-seekers as well as our long-term immigrant contributors — we would not be able to do the work that we do,” she said. “Every single thing that affects the American economy is driven by and will only be saved by accepting immigrant labor.”

A study by Wendy Edelberg and Tara Watson, economists at the Brookings Institution’s Hamilton Project, has concluded that over the past two years, new immigrants raised the economy’s supply of workers and allowed the United States to generate jobs without overheating and accelerating inflation.

In the past, economists typically estimated that America’s employers could add no more than 60,000 to 100,000 jobs a month without overheating the economy and igniting inflation. But when Edelberg and Watson included the immigration surge in their calculations, they found that monthly job growth could be roughly twice as high this year — 160,000 to 200,000 — without exerting upward pressure on inflation.

“There are significantly more people working in the country,” Fed Chair Jerome Powell said last week in a  speech at Stanford University . Largely because of the immigrant influx, Powell said, “it’s a bigger economy but not a tighter one. Really an unexpected and an unusual thing.’’

Trump has repeatedly attacked Biden’s immigration policy over the surge in migrants at the Southern border. Only about 27% of the 3.3 million foreigners who entered the United States last year did so through as “lawful permanent residents’’ or on temporary visas, according to Edelberg and Watson’s analysis. The rest — 2.4 million — either came illegally, overstayed their visas, are awaiting immigration court proceedings or are on a parole program that lets them stay temporarily and sometimes work in the country.

“So there you have it,’’ Douglas Holtz-Eakin, a former CBO director who is president of the conservative American Action Forum, wrote in February. “The way to solve an inflation crisis is to endure an immigration crisis.”

Many economists suggest that immigrants benefit the U.S. economy in several ways. They take generally undesirable, low-paying but essential jobs that most U.S.-born Americans won’t, like caring for children, the sick and the elderly. And they can boost the country’s innovation and productivity because they are more likely to start their own businesses and obtain patents.

Ernie Tedeschi, a visiting fellow at Georgetown University’s Psaros Center and a former Biden economic adviser, calculates that the burst of immigration has accounted for about a fifth of the economy’s growth over the past four years.

Critics counter that a surge in immigration can force down pay, particularly for low-income workers, a category that often includes immigrants who have lived in the United States longer. Last month, in the most recent  economic report of the president , Biden’s advisers acknowledged that “immigration may place downward pressure on the wages of some low-paid workers” but added that most studies show that the impact on the wages of the U.S.-born is “small.”

Even Edelberg notes that an unexpected wave of immigrants, like the recent one, can overwhelm state and local governments and saddle them with burdensome costs. A more orderly immigration system, she said, would help.

The recent surge “is a somewhat disruptive way of increasing immigration in the United States,” Edelberg said. “I don’t think anybody would have sat down and said: ‘Let’s create optimal immigration policy,’ and this is what they would come up with.”

Holtz-Eakin argued that an immigration cutoff of the kind Trump has vowed to impose, if elected, would result in “much, much slower labor force growth and a return to the sharp tradeoff’’ between containing inflation and maintaining economic growth that the United States has so far managed to avoid.

For now, millions of job vacancies are being filled by immigrants like Mariel Marrero. A political opponent of Venezuela’s authoritarian President Nicolás Maduro, Marrero, 32, fled her homeland in 2016 after receiving death threats. She lived in Panama and El Salvador before crossing the U.S. border and applying for asylum.

Her case pending, she received authorization to work in the United States last July. Marrero, who used to work in the archives of the Venezuelan Congress in Caracas, found work selling telephones and then as a sales clerk at a convenience store owned by Venezuelan immigrants.

At first, she lived for free at the house of an uncle. But now she earns enough to pay rent on a two-bedroom house she shares with three other Venezuelans in Doral, Florida, a Miami suburb with a large Venezuelan community. After rent, food, electricity and gasoline, she has enough left over to send $200 a month to her family in Venezuela.

“One hundred percent — this country gives you opportunities,’’ she said.

Marrero has her own American dream:

“I imagine having my own company, my house, helping my family in a more comfortable way.”

Wiseman and Rugaber reported from Washington, Salomon from Miami.

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