Supply And Demand Effects On The Labor Market
                     SUPPLY AND 
DEMAND: 
EFFECTS ON 
THE LABOR 
MARKET
WHAT IS THE 
LABOR MARKET?
The labor market, also known as the 
job market, refers to the supply of 
and demand for labor, in which 
employees provide the supply and 
employers provide the demand.
Source: www.investopedia.com
UNDERSTANDING 
THE LABOR 
MARKET
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. 
Source: www.investopedia.com
THE LAWS OF 
SUPPLY AND 
DEMAND
The laws of supply and demand are 
in play in any market, wherever 
people are buying and selling goods 
and services. The labor market is no 
different. 
Source: www.investopedia.com
SUPPLY
The supply of labor is determined by 
population, immigration and labor 
force participation -- how many 
adults are working or actively 
seeking employment. The supply of 
labor can be influenced by additional 
workers entering the labor force, 
which tends to depress wage rates. 
Source: smallbusiness.chron.com
DEMAND
The demand for labor derives from 
the demand for the goods and 
services that labor produces. A 
strong demand for products creates 
a demand for the labor to produce 
them. When the wage rate is high, 
employers limit the number of 
employees they hire.
Source: smallbusiness.chron.com
MINIMUM WAGE
Every time the Congress votes to 
increase the minimum wage, a 
debate erupts about its effect on 
unemployment. If workers are 
employed at the prevailing minimum 
wage, then a government-mandated 
higher minimum will increase 
unemployment.
Source: smallbusiness.chron.com
UNIONS
Unions typically negotiate to raise 
their pay scale or to limit the size of 
their membership. A craft union 
composed of members in a 
particular trade can restrict the 
supply of labor by requiring that 
employers hire only union workers. 
With a limited supply of workers, the 
result is higher wages. 
Source: smallbusiness.chron.com
FOREIGN 
COMPETITION
The effect of inexpensive labor from 
abroad has depressed U.S. wages 
even as jobs have been lost. The 
Third World has a virtually unlimited 
supply of labor, which is becoming 
more skilled with the passage of 
time. American labor must gain new 
skills to remain competitive in a 
global market.
Source: smallbusiness.chron.com
THE LABOR 
MARKET IN 
MACROECONOMIC 
THEORY 
According to the macroeconomic 
theory, the fact that wage growth 
lags productivity growth indicates 
that the supply of labor has 
outpaced demand.
Source: smallbusiness.chron.com
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. 
Source: smallbusiness.chron.com