Perfectly competitive labor model
Several models can be used to explain supply and demand of labor in an economy. These models generally relate the supply and demand of labor in terms of employment and wages that an employer would like to pay for a certain employment. The most common models are based on wage level, employment levels and rates, unemployment and wage dispersion. One of these models based on wage level is the perfectly competitive labor market where free forces of the market decide on employment levels. This is best explained in perfectly competitive labor model in Wallisian labor market (Alicante, 2010).
In this model, the supply and demand of labor is not affected by anything else apart from wage and employment levels. The employers decide on the wage level for a certain employment. This makes the wage level to be uniform thus the employees do not have an option if they pursue a certain employment under different employers. In this model, the employment level is a function of wage level and the intersection point of the two graphs is the optimum point of employment and it also marks the maximum wage the employers are willing to pay for the maximum employment (Alicante, 2010).
In this model, labor is treated just like any other product of trade making the situation simple. Wage level in most cases is not as uniform as assumed by this model thus the model makes several assumptions. Employment is dependent on wage level which in most cases is true but for the situation to be realistic; other factors like total revenue generated must be considered (Alicante, 2010).
In this model, the idea of people lacking employment is not in existence since employment is there but the wage cuts off the employee number. Critically analyzing this model, it is an ideal situation since if it is real; the employment levels would always remain low since all working conditions are not uniform. The assumptions made by the model of a uniform employer decision and employee decision are also not a practical thing (Alicante, 2010).
References
Alicante, U. 2010. Labor Economics: Models 1 (Static and Early dynamic models). Penguin Publishers
