Price, Supply, and Demand in the Labor Market
How to Supply, Demand, and Price interact in the Labor Market?
Written by Jason Gordon
Updated at March 27th, 2023
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How do Price, Supply, and Demand in the Labor Market?
Markets for labor have demand and supply curves, just like markets for goods. The law of demand applies in labor markets this way: A higher salary or wage—that is, a higher price in the labor market—leads to a decrease in the quantity of labor demanded by employers, while a lower salary or wage leads to an increase in the quantity of labor demanded.
The law of supply functions in labor markets, too: A higher price for labor leads to a higher quantity of labor supplied; a lower price leads to a lower quantity supplied.
In the real world, this “price” would be total labor compensation: salary plus benefits. It is not obvious, but benefits are a significant part (as high as 30 percent) of labor compensation.
As the salary rises, the quantity demanded will fall. As the salary for nurses rises, the quantity supplied will rise.
Related Topics
- Labor Economics
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Labor Market Equilibrium
- Labor Market
- Labor Market Equilibrium
- Labor Market Efficiency
- Price, Supply, and Demand in the Labor Market
- Equilibrium Wage
- Shifts in the Demand for Labor
- What Causes Shifts in the Supply Labor?
- How Technology affects Demand for Labor?
- Minimum Wage as a Price Floor in the Labor Market
- What is the First Rule of Labor Markets?
- Labor Demand in Perfectly Competitive Markets
- Imperfect Competition in Labor Markets
- Monopsony
- Oligopsony
- Labor Market Power of Employers
- What is the marginal Cost of Labor?
- Labor Market Power of Employees
- What is a Bilateral Monopoly in a Labor Market?
- Wage Elasticity of Labor Supply
- Equilibrium in Supply and Demand in Labor Markets
- Shifts in Supply and Demand in Labor Markets
