The structure of labour markets

Abstract

How labour markets operate in an economic system? has long been a dominant area of newlineresearch in economics, and that has received tremendous scholarly attention from diverse newlinefields of social sciences. The functioning of the labour markets, according to conventional newlinewisdom, is primarily confined to the two fundamental axioms of market: demand and supply. newlineFrom a pragmatic point of view, these two axioms represent two principal agents: workers newlineand firms. More aptly, while the former represents the supply of labour, the latter represents newlinethe demand for labour. Put it in a slightly different way, whilst the supply of labour deals newlinewith the number of people who participate in the labour markets, the demand for labour newlinerepresents the firms that decide how many workers to be hired. What is essentially important newlineis that two agents workers and firms- possess two distinct motives. On the one hand, when newlinethe workers tend to maximise their well-being, called utility, firms, on the other hand, attempt newlineto maximise profit. The conflicting interests between the workers decision to participate in newlinethe labour markets and the firm s decision to hire workers are determined by wage rates, newlinewhich are paid for the productive services rendered by workers. Quite clearly, with related to newlinethe level of wage earnings, the demand for and the supply of labour move in opposite newlinedirection. When the level of wages increases, workers are more likely to supply their newlineproductive services, but few firms are willing to hire them, and vice versa. In a competitive or newlinea free market economy, these conflicting interests ultimately attain an equilibrium point, a newlinesituation of market in which the demand for and the supply of labour are equal. In fact, this newlinesimplistic representation of the operation of the labour markets can also be interpreted from newlinetwo distinct angles. newline