labour market

There is no building called 'the labour market', yet almost everyone takes part in it. Every time someone applies for a job, an employer posts an opening, two people negotiate a salary, or a worker quits for a better offer, the labour market is at work. It is the loose, society-wide arena where the time and skills of workers are matched up with employers who need them, and where the price of that time — the wage — gets settled.

Like any market, it has a supply side and a demand side. The supply of labour comes from households: people deciding whether, where, and how many hours to work. The demand for labour comes from firms, and it is a derived demand — firms want workers only because they want to produce things customers will buy. Where supply meets demand, in principle, sets the going wage for a given kind of work, just as supply and demand set the price of apples. More precisely it is many markets at once: the market for nurses is separate from the market for welders, because their skills are not interchangeable.

Labour markets are special, though, and economists are careful not to push the apple analogy too far. Labour cannot be stored or shipped freely, workers care deeply about who they work for and how they are treated, the law sets rules (minimum wages, safety, anti-discrimination), and information is poor on both sides — you can't fully test a job before taking it, and employers can't fully judge a worker before hiring. So real labour markets are sticky and imperfect, which is why wages don't instantly clear and why unemployment can persist.