We explain what the labor market is, how it works and why it is important. Also, what are its features, elements and more.

What is the labor market?

The labor market or labor market is the totality of relations in a given society between those who seek paid employment (applicants) and those who offer employment or demand employees (employers). In other words, this is the name given to the total supply and demand for employment in a country, a city or a specific region.

The labor market has particularities with respect to that of consumer goods or services, above all because it covers a key area of the economy and society . It is strongly regulated by labor laws, issued by the State to guarantee workers respect for their rights and benefits, logically called labor rights.

Offer and demand

Offer and demand

In terms of the labor market, we will speak of supply to refer to the number of jobs available in a community .

It depends on the total number of companies , institutions and employers who have jobs work available.

The demand refers to the number of unemployed workers or workers in need of work that exist in the same society .

When the relationship between these two elements strongly favors demand , there are more applicants than jobs and therefore unemployment occurs. In addition, employment conditions tend to be poorer.

On the other hand, when there are more jobs than applicants, they make employment conditions more expensive , since employers must compete with each other for the employee. There is also usually immigration to fill the hole in the demand.

How does the labor market work?

The labor market is governed, as we have said, by the guidelines of labor law , that is, the labor laws of each country. This means that, when establishing employment contracts, a series of legal agreements, benefits and individual and collective rights, and even prohibitions, must be taken into account.

Elements such as paid vacations, social security, social responsibility and contributions to the retirement fund are just some of the measures that intercede in favor of the worker. In this way a dignified existence is guaranteed.

Why is the market important?

Why is the market important?

The labor market is key in the economy of the countries , since the profitability of the companies depends on its performance .

On the other hand, it also affects the stability of social peace . An unemployed society is prone to unrest, to protests, to the loss of purchasing power. In the long run, this has political, economic and other repercussions.

Labor market indicators

Labor market indicators

When studying and understanding the labor market and its dynamics, attention is paid to the following indicators:

  • Economically active population (EAP). Total number of people in a country or society who are able to work and are old enough to do so.
  • Unemployment or unemployment. Number of people in working capacity who cannot find work.
  • Underemployment. It refers to people who work less time than they could according to legal standards.
  • Real wage index. It measures the increase or decrease in the purchasing power of wages, averaged.
  • Consumer Price Index (CPI). An indicator over time of the relationship between the salary earned by workers and the cost of living in which they invest it, to obtain goods and services.
  • Informal employment. Those who do not appear in any type of bureaucratic control of the State and usually do not pay taxes, do not have social security or protection of any kind.

Labor market conditions

There are different social, economic and even technological elements that condition the performance of the labor market in the countries:

  • Population growth. The more people there are in a country due to a very high birth rate, or a continuous immigration situation, the more jobs will be necessary for everyone to cover their full needs .
  • Automation and technification of work. As machines are perfected and are capable of more and more automated work with almost no human input, many old jobs disappear and workers with higher levels of knowledge or technical training are required. On the other hand, in productive sectors that are still very underdeveloped, unskilled labor continues to be necessary.
  • Labor policies. States often vary the rules of the game with which employers can hire their workers, to give the latter more rights and benefits (ideally), which changes the cost per employee for companies. Sometimes this can trigger radical measures to protect corporate capital, such as waves of mass layoffs, or on the contrary it can fan the flame of hiring.
  • Union performance . In general, workers are organized in unions and other socio-political structures to defend their rights and mediate with their employers. This often leads to collective bargaining and other types of contracts that can affect the recruitment of new workers, the maintenance of existing ones, or the dismissal of some of them.

Elements that determine the labor market

Elements that determine the labor market

The functioning of the labor market has a direct impact on:

  • Consumption . Unemployed people tend to consume much less and therefore contribute much less to the economic wheel. If theunemployed population is massive, its decrease in consumption can impact business profits and generate economic recessions. Employees, on the other hand, consume and go into debt to obtain goods and services.
  • The savings. The unemployed tend to live on their savings until they get another job, so they withdraw their money from banks, affecting their solvency as well. Instead, employees tend to save or borrow, which injects energy into the country's financial apparatus.
  • The production. Optimum production levels require a number of jobs operating in harmony. The lack of workers directly affects the production capacity of companies.
  • Public expenditure. This has to do, more than anything, with workers in the State (ministries, secretariats, etc.) or with those who receive forced unemployment, that is, government aid to the unemployed (if any).
  • Minimum salary. When there are too few workers for the number of jobs, the minimum wage tends to increase. When it is the other way around, on the other hand, it remains stable (in general, the State does not allow it to decrease).

Labor law

Labor law

It is called labor law or labor law to the branch of jurisprudence that deals with the rules that govern work and relations between employers and workers. Among them are union, salary, contractual and other agreements that must always be given in accordance with the labor laws of the country.

The State sets the rules of the game with which workers and employers must understand each other. Any violation of these rules is resolved through judicial mediation or litigation.

The workforce

The labor force is understood as the set of physical and mental work capacities available to the people of a country. The total set of its potential workers, employed or not, are the workforce of a nation, which can be well or poorly used by their employers.

Consequences of unemployment

Consequences of unemployment

The consequences of unemployment are serious: they affect the economic balance of society and load it with needs, while reducing its production.

A society with high unemployment rates is a society of idle people , in need of production, who for the same reasons are more susceptible to “black” or informal employment. In desperate cases, they may also turn to criminal activities.

Unemployment also requires actions from the State , with plans to promote work or unemployment measures that, although necessary, increase public spending. Not to mention the social unrest that this whole phenomenon causes.

The new labor market

The new labor market in the world of the 21st century is governed by new demands, such as specialized, highly technological work . It even usually occurs over long distances, since the Internet makes it possible.

This has enabled a huge sector of "freelancers" workers , that is, self-employed, who often lack any social protection, although they earn better wages.

On the other hand, the role of women has been made visible and incorporated in the labor market . Today they constitute one more productive segment, and not a weak and unproductive sector as at the beginning of the last century. The demands for equal pay between genders, for example, ratify it.

The most pessimistic predictions warn about the gradual technification of the services sector , which could leave millions of employees obsolete. Since the production sector has been automated, the service sector has constituted the great reservoir of work for human beings.

The above content published at Collaborative Research Group is for informational and educational purposes only and has been developed by referring reliable sources and recommendations from experts. We do not have any contact with official entities nor do we intend to replace the information that they emit.


Veronica is a culture reporter at Collaborative Research Group, where she writes about food, fitness, weird stuff on the internet, and, well, just about anything else. She has also covered technology news and has a penchant for smartphone stories. .

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