Labor Market

Labor Market

A labour market is the place where workers and employees interact with each other. In the labour market, employers compete to hire the best, and the workers compete for the best satisfying job. In a labour market, services of human labour are bought and sold like other commodities. But there is a vast difference between labour market and commodity market. Labour market can never be perfect market.


Labour market is defined as the market for hiring and supplying labour to perform certain jobs at a wage rate.

Labour market can be defined as a process by which supplies of a particular type of labour and demands for that type of labour balance or seek to obtain a balance.

Features/Characteristics of Labour Market

1. Labour market is concerned with labour which is a human resource.

2. The relationship between a buyer and a seller in a labour market is likely to the continued for some time.

3. It is process in which a balance between supply of a particular kind of labour and demand is maintained.

4. It is a market where wage rates differ for the same kind of work due to lack of perfect mobility.

5. Labour markets are normally local markets.

6. In labour market price does not change very often but remains constant for a period of time.

7. As labour is not homogeneous, we find different types of workers in labour market.

8. In lablor markets, workers try to increase their strength by forming their trade unions and resort to collective bargaining.

9. There is exploitation of labour in labour market.

10. Wages, terms and conditions of employment etc. are determined in the labour market through bargaining tussles between workers and employers.

11. Labour cannot move with the same ease and facility with which goods are transported from one place to another. So there is lack of mobility of labour.

12. Labour market is essentially an imperfect market.


Classification of Labour Market

Clark Kerr has given following models of the Labour market:

1. The perfect market

2. The neo-classical market

3. The natural market

4. The institutional market

5. The management market


1. The Perfect Market

This kind of market is made up of a large number of relatively small and undifferentiated buyers and sellers. There is a complete freedom of entry and exit, complete knowledge and complete mobility of all resources within the market area. Under such circumstances, the single price prevails and the market is regularized.

2. The Neo-classical Market

It accepts that imperfections and inequality exists in the market as all the workers do not acquire same sort of skills. Inspite of all these imperfections and inequalities, it is assumed that wages will tend towards equality for workers in a given skill classification.

3. The Natural Market

Here workers are innocent and ignorant; therefore do not have detailed knowledge of the market. They are not capable enough to analyze the advantages of the jobs they hold against the kind of the alternatives. They also do not grudge against the employers, who constantly make an effort to create the greater bargains in the labour market.

4. The Institutional Market

The institutional market is one in which the policies of unions, employers and the government have more to do with wage movements than free competitive forces. Indeed, the objective of policies developed by all three unions, employers and the government is to limit the free operation of the forces of demand and supply.

Institutional policies, rather than the market, set the upper and lower limits of wages and these clearly reduce the mobility of labour. Uniform wages are often found for a given grade of workers in the institutions markets but this is because of the influence of institutions and not a result of the interaction of demand and supply.

5. The Management Market

The management market, like the perfect market, does not exist in the real world. The objective of management market would be to tie the wage setting and labour movement more closely together than they are in the natural market. This would proceed along with the imposition of state controls on wage setting and on allocation of labour.

Institutional labour market is more popular where the influence of demand and supply existing in labour market is regulated by the policies of unions, employers and the government.

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