Labor markets

Labor markets are markets where workers are the source of SUPPLY and employers are the source of DEMAND. Labor is one category of RESOURCES. Along with CAPITAL and natural resources, labor is necessary to produce goods and SERVICES. Employers hire workers based on the expected output and revenue they will generate. If only one worker staffed a fast-food restaurant, that person would have to take orders, prepare the food, take payment, inventory supplies, and clean the eating area, spending a considerable amount of their time moving from one task to the next. Adding more workers would increase output through task specialization and reduction in wasted motion. The additional output from adding one more unit of labor is the marginal product of labor. The value of that marginal product, the extra output multiplied by the market price of that output, is the marginal revenue product of labor. The demand for labor is based on the marginal revenue product of labor. Using the fast-food restaurant example again, adding more workers will increase output up to a point, but as workers start jostling with each other in the confined space and competing for limited machinery, the marginal product of labor would begin to decline and even become negative. Employers are unlikely to hire more workers when they do not increase output. Labor markets are different from other resource markets in that a higher price will not always result in a greater quantity supplied. The law of supply states that, ceteris paribus (other things remaining constant), a higher price will result in a greater quantity supplied and a lower price will result in less quantity supplied. But workers look at work as a source of INCOME with which to purchase goods and services. If people are constantly working, they will not have time to use and enjoy their purchases. During peak economic times, when wages are rising rapidly, some workers will work less (primarily choosing not to work overtime) as wages increase. Economists refer to this as a backward-bending supply curve. Labor markets, like markets for goods and services, vary greatly. Local supply-and-demand conditions result in considerable wage variation. College students often find local markets (around big universities) are overcrowded with qualified people. This excess supply allows employers to hire highly skilled people at relatively low salaries. Similarly, in many remote areas, subsidies are often needed to attract skilled workers. In addition to labor supply and demand conditions, working conditions and risks, certification requirements, and occupational segregation contribute to wage differences. Many professions attempt to restrict entry into their specialized labor markets as a means of reducing supply and generating higher incomes. In one state, realtors tried to pass a requirement that real-state agents have a fouryear degree (although they grandfathered themselves, allowing existing realtors to avoid the requirement). A few years ago, accounting students were shocked when they learned they now needed 150 college credits (rather than the previous 120 credit hours) in order to sit for CERTIFIED PUBLIC ACCOUNTANT (CPA) exams. Cosmetologists fought legislation designed to do away with licensing of workers in their industry. U.S. antidiscrimination laws prohibit discrimination in labor markets based on race, gender, age, and national origin. The Equal Employment Opportunity Commission (EEOC) oversees labor market discrimination complaints.