Labor Market Equilibrium - Explained
What is Labor Market Equilibrium?
Written by J. Mance Gordon
Updated at April 23rd, 2024
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What is Labor Market Equilibrium?
The labor market is made up of workers and firms. The number of works in the market increases as wages rise. The number of employees rise (hires by firms) as the wage decreases.
Equilibrium in the labor market is when the supply of workers meets the demand for works by firms.
Requirements to Reach Labor Market Equilibrium
Generally, equilibrium in the labor market is never perfect, as there are continuous shifts in the supply and demand for workers based up external factors. Nonetheless, the following four characteristics are generally required to reach market equilibrium:
- Firms are price-takers. They can’t influence the price of output as well as the wage rate.
- The supply of labor is elastic. The supply will increase as the industry wage rate increases.
- Firms in the market all aim for profit maximization.
- The marginal product of labour (MPL) curve is downward sloping.
Related Topics
- Labor Economics
- Labor Market Equilibrium
- Labor Market Efficiency
- Productivity Economics
- National Average Wage Index
- Unemployment
- Labor Force Participation Rate
- Job Openings and Labor Turnover Survey
- Labor Surplus Area - Explained
- Lump of Labor Fallacy - Explained
- Labor Force Participation Rate - Explained
- Bureau of Labor Statistics
- ADP National Employment Survey
- Labor Theory of Value - Explained
- Labor Productivity - Explained
- Wage Elasticity of Labor Supply
- Sticky Wage Theory (Economics)
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