The job or labor market is an intricate employment market that works on supply and demand conditions. It defines the need for a supply of labor to meet the demand for work.
The supply and demand relation combines to determine the labor cost and the number of employees required. It is also linked to the capital, services, and goods markets.
What Are the Components of a Labor Market?
Four elements or components define the labor market. They are:
1. Labor Force Population
The population defines the number of people willing to work on compensation regardless of the difference in the field of work with their interests or skills.
2. Candidate Population
The applicant or candidate population comprises people who share the same expertise and skills and apply for similar jobs.
3. Candidate Pool
This component consists of people who have applied for a job position by submitting their CV or Resume. Now, employers have the opportunity to choose the best candidate out of the candidate pool.
4. Applicants Selected
The last component of the labor market consists of individuals selected by employers for the job position they applied for. This process comes after rigorous screening through hundreds of submissions.
What Factors Does the Labor Market Depend On?
As with any other market, the labor market also depends on the relation between supply and demand. These two factors simultaneously provide a sustainable job market for applicants and employers.
Supply is fulfilled through employees, and demand is fulfilled through employers. Together, the labor market can help employers succeed in building an efficient workforce.
The labor market factors depend on various things, such as the competitive candidate pool, job vacancies, wage information, demography, and job environment.
When employers focus on these variables for supply and demand, they efficiently recruit suitable employees with fair compensation. Moreover, the company grows effectively under the supervision of qualified employees.
How to Understand the Labor Market?
The labor market is so large that it cannot be defined at a singular level. One must view the market through microeconomic and macroeconomic levels to get a proper understanding.
1. Macroeconomic Level
The dynamics of local and international markets influence the supply and demand relationship. Other variables, such as education status, population age, and immigration, also control the ups and downs of the chain.
A simple explanation of the macroeconomic theory is that the job demand decreases because of the supply percentage—the number of employees or working hours exceeding the demand. This reduces income, and the job market becomes more competitive.
Moreover, the macroeconomic level analyzes the goods, capital, foreign exchange, and labor markets' relationships to one another and their impact on other variables like Unemployment Productivity, Participation Rates, Aggregate Income, Employment Levels, and Gross Domestic Product (GDP).
2. Microeconomic Level
The microeconomic level focuses on a firm’s interaction with its prospective or current employees. Here, the supply and demand chain impact the compensation and benefits of the employees and their working hours.
The microeconomic level also examines different aspects of the employer involving:
Increasing or decreasing income and working hours
When companies offer a higher salary, the employee willingly puts extra effort into the company. But the opposite happens when demand drops, affecting the supply. So, less pay equals less work.
Simply put, employees volunteer to work extra hours when employers increase their income; that is, supply increases with the increase of demand.
What Is the Importance of the Labor Market?
The labor market creates opportunities for employers to improve and thrive in the economic and social sectors. The employees also benefit from showcasing their skills to get fair-paying jobs.
Here are a few other labor market benefits for both employees and employers.
Staying up-to-date with a job’s market value and paying a fair wage.
Building a qualified workforce to withstand new competition and changes.
Making efficient use of the company budget on employee training.
Improving skills and expertise with company training programs.
Building career paths for promotions or to get a better job.