Introduction
In economics, a market is an institution or a mechanism that brings together buyers (bearers of demand) and sellers (suppliers) of certain goods and services. At the same time, markets may take various forms, including the form of the labor market. The labor market not only covers employees in all sectors of the economy of various skilled workers, but also working-age people who are not involved in the social production at the moment (for example, temporarily unemployed people).
In the most general form, the labor market is the economic relationship between the demand and the supply of labor. The labor market is a set of economic relations between the labor owners (free citizens) and buyers of the labor force (entrepreneurs). However, the basic elements of the labor market are supply, demand and labor cost. Demand is the amount of labor that the employer is willing and able to buy at a certain price within a certain time. The main factors influencing demand are the increase in demand for labor that produced products or services, the productivity of the species, changes in the prices of other inputs for production. The value of supply is the number of people employed or looking for a job.
Labor supply is characterized by a number of people (composed by gender and age, education, occupation, qualifications and other required characteristics), capable of work and are interested in getting a job in the conditions of employment.
Among the factors influencing the supply of labor in the labor market are:
1. Economic factors (the wage rate, the overall level of salary, working hours, etc.).
2. Social (state pensions, prestige points).
3. Factors associated with education and training.
4. Psychological (willingness to work).
5. Demographic (population growth).
In fact, no one is immune to lose the job. According to international statistics, 98% of people at least once were unemployed. Therefore the problem of the relationship of the employer and the unemployed in the labor market will always be a problem of both macro- and microeconomics.
Body
As already mentioned, the labor market is a combination of economic and legal procedures that enable people to exchange their labor services on wages and other benefits, which firms agree to provide them in exchange for these services. The labor market, as well as capital markets, commodities, securities is a part of the market economy. The work was a fundamental principle of the creation of man as a social being. Moreover, labor appears to be a socially organized activity of people, aimed at meeting the physical, spiritual, moral and social needs. Human labor is primary in relation to the means of production. Any machine or mechanism has no value without the labor application. The instruments of labor only act as such when they are combined with living labor. According to Marx, living labor must embrace these things, to resurrect them from the dead, to turn them from potential values into the real and usable values ("Labor Market: Definition & Theory | Study.com", 2016).
In general, the labor market should be understood as the system of social relations associated with hiring and labor supply or buying and selling. In the narrow sense, it is a system of economic relations in the area of labor utilization (reproduction, functioning social protection) at various levels of management. In the market economy, the system of production (economic) relations are based on the free purchase and sale of labor power, and these relationships are called market.
The labor market can be defined as a system of economic relations arising between its subjects in the labor circulation in its commodity form. With all the features of the national labor market, its prerequisite is personal and economic freedoms, the ability to select not only jobs, but also lifestyle.
According to the concept of private ownership of the means of production (and hence the jobs), the labor market is mainly represented by two entities - an employee (the owner of the goods - the labor force) and the employer (owner of capital and jobs created by them). However, the government also actively participates in a labor market. It actively intervenes in the relationship between the two main subjects of the labor market, acting as a legislator and labor relations arbitrator in labor disputes. In addition, the government in a market economy is a property owner (to a greater or lesser extent). It also can be an employer - it creates jobs and therefore also acts as an active subject of the labor market.
The labor market is the most complex element of a market economy. This is not only intertwined interests of the employee and the employer in determining the price of labor and its functioning, but also reflects almost all socioeconomic changes in society. The labor market is the organic component of any market economy, acting as the mechanism of distribution and redistribution of social labor in the spheres of economy and industry, the types and forms of activity on the criterion of the efficiency of labor and production in accordance with the structure of social needs and forms of ownership.
The components of the labor market are:
The parties of market relations, market participants, employers, job seekers;
Legal acts, the decisive relationship between the subjects of the labor market;
Market conditions - the ratio of demand and supply of labor, which determines wages for certain types of work and the level of employment;
Employment agencies of the population;
A set of social benefits and guarantees for those who released from the production, allocated for a new job, unemployed;
Temporary forms of employment, public works, wage labor, seasonal work and other.
The presence and interaction of all elements of the labor market is necessary for normal functioning, which refers to the situation when there are all the conditions for the implementation of the labor market functions created.
The labor market is usually characterized by perfect competition, which is being implemented with the help of market price mechanisms, when neither workers nor employers cannot affect the market situation as a whole; the equilibrium wage rate does not depend on the behavior of certain groups of workers. It is defined by the general conjecture, that is a total interaction of all participants in the market process. In the case of perfect competition, the entrepreneurs get the maximum profit if the value of the product is equal to the nominal wage rate. If the rate of real wages is reduced, an entrepreneur should use more labor to reach profit. But the increase in employment by reducing the rate of wages below the "natural" level is equivalent to the delay of technical progress.
The labor market, like any commodity market, is developing according to the laws of supply and demand.
Demand is the amount of labor, which employers are willing to hire at some point of time, for a given level of wages ("Demand For Labor Definition | Investopedia", 2007).
Types of demand:
- Individual demand - a demand for a single product or a single buyer;
- Market demand - the demand of the set of products and a lot of buyers;
- Realised demand - when the needs are the same as the opportunities;
- Deferred demand - when the purchase is postponed until a certain time.
The demand for labor, which is presented to the market by firms, depends on two factors: firstly, on a marginal productivity, and secondly, on the level of supply of other factors of production. The head of the company, who wants to hire an employee, increases the demand for labor, as long as the wages of the marginal employee is less than the revenue, which is received from the use of this employee. Thus, the marginal employee productivity determines not only his own salary, but also the salary of other employees.
The demand for labor reflects the need of the economy for a certain amount of workers on any given moment of time. Normally, this need is expressed in individuals or on an annualized basis. Overall demand quantity must be equal to the number of employees plus the existing vacancies. There are a lot of economic phenomena and processes that give rise to this demand hidden in the measure of demand for labor.
The demand for labor is generated by an industry. In terms of quantity, it must match the total additional demand of enterprises and organizations for workers (regardless of the organizational-legal forms and forms of ownership). When calculating the labor demand, the need of companies for new employees and companies need for workers required to replace the retired (regardless of the reason) are determined. Thus, it is possible to set the number of persons who may be employed.
Another force, which determines the demand for labor is the supply of other production factors, especially the capital. The greater supply of capital, the lower is its price (ceteris paribus). As a result, the demand for labor can be reduced, because the entrepreneurs substitute capital for labor (the substitution effect), or increased, since additional labor (exchange effect) is required to service the increased amounts of capital.
The supply is also affects the development of the labor market. The supply on the labor market is the amount of good that the seller (manufacturer) is willing and able to offer (to sell) the purchaser. Labor supply is the need of different groups of the working age population in getting an employment as the source of their existence ("Econoclass: Supply and demand in labor markets", 2016). Labor supply is caused by the following factors:
- Population, first of all, working-age group;
- The average number of working hours for a certain time (week, month, year)
- The number of population groups by qualification level and the corresponding structure.
There are three periods of labor supply:
1. Instant period - the volume of supply is treated as a constant at a given moment of time.
2. Short-term period - it is a period of time during which you can not drastically change the industry, i.e. the supply is not changed significantly.
3. Long-term period - the period of radical changes in an industry, and therefore the supply also changes.
For the whole of the labor market, the supply curve has a positive slope: with the growth of wage labor supply increases. There is no reverse bending, as new employees regularly replenish the labor market (for example, the higher is the salary of an economist, the greater is the number of students who choose this field of study).
Labor supply should be determined along with taking into account the statistical information on the number and age and sex structure of the workforce, the economic activity of various categories of the population, the employment rate of older persons and adolescents. The specific rate of wages in the labor market is a result of the interaction and balance of labor demand and supply. Thus, the equilibrium wage rate reflects the equality of the marginal productivity of labor and the marginal cost of labor. The labor market, as well as any other is to be in equilibrium, so the impact of prices on supply and demand is a market equilibrium. The most important stage of the evaluation of forecasting regional labor market is a comparison of these indicators. Then, it is possible to assess the actual and expected situation on the labor market, establish the presence or lack of excess labor and develop a system to improve regional employment measures on this basis.
Conclusion
The labor market is the combination of economic and legal procedures that enable people to exchange their labor services on wages and other benefits, which firms agree to provide in exchange for their services. The components of the labor market are: the part of market relations, market participants, employers, job seekers; legal acts, the crucial relationship between the subjects of the labor market; market conditions - the ratio of demand and supply of labor, which determines wages for certain types of work and the level of employment; employment agencies of the population; a set of social benefits and guarantees for released from the production allocated for a new job, unemployed; temporary forms of employment, public works, wage labor, seasonal work and other.
The labor market is also affected by the law of supply and demand. The supply represented a number of the economically active population. The demand is the employer's needs. The supply and demand are influenced by various factors such as the price of labor, economic growth, labor conditions and others.
Thus we can say that the structure of demand and supply of labor depends on the objective and subjective factors, emerging out of the labor market: the scientific and technological progress, the state of economic conditions, demographic processes, the needs of the individual in his work, the development of infrastructure of labor market activity in the labor market government, unions of employers, trade unions and others.
References
Demand For Labor Definition | Investopedia. (2007). Investopedia. Retrieved 6 May 2016, from http://www.investopedia.com/terms/d/demand_for_labor.asp
Econoclass: Supply and demand in labor markets. (2016). Econoclass.com. Retrieved 6 May 2016, from http://www.econoclass.com/economicsoflabormarkets.html
Labor Market: Definition & Theory | Study.com. (2016). Study.com. Retrieved 6 May 2016, from http://study.com/academy/lesson/labor-market-definition-theory-quiz.html
