Definition: A Labor market is a marketplace where individuals offer their expertise, talent, skill, and know-how to the future employer in exchange for monetary compensation like salary or wages or any other form of suitable compensation that is agreeable to both parties.
The concept of a marketplace for finding labor has been in existence since time immemorial. Interested parties are on the look-out for the best available human resources and the employees in seeking gainful employment.
The market is like any other typical market where goods are being bought and sold at a price. Here the term goods refer to labor, and the related price is the wage or salary offered against the work.
Labor is one of the most critical factors of production that drive supply besides the other factors, land, capital, and entrepreneurship. In a market economy, all these four factors play an essential role in meeting consumer demand. The economy is best when there is a perfect match between labor market demand and supply and, in this case, skills and pay.
Types of labor in the market
Employers need labor to boost their production process, and labor, in turn, uses equipment and tools to turn input into outputs.
Based on the level of skill the labor can be categorized as
- At the most basic level is the unskilled workforce that does not require training of any sort. He generally handles manual work and service work for instance farm work and janitorial respectively
- At the next level is the semi-skilled worker who requires both training and education to a certain level. One of the prime examples is a manufacturing job
- The skilled labor is in demand for high-profile jobs that require specific worker for specific positions. He should have a proper educational degree as well as training to meet the demands placed by job requirements.
The characteristics of the labor market model are as follows-
- It is ultimately the market that is the deciding factor in determining how the labor will be allocated and at what cost and in simple terms where the seller of services will work and how much will he receive against the work from the buyer.
- A labor market is a place where both supply and demand for a specific job are met. The seller is generally an individual, but the buyer can be an individual or an organization that requires a service or several services.
- The marketplace can be local, national, and even international. It is the place where information is exchanged between the buyer and seller concerning wage rates, job location, level of competition, and conditions of employment.
Components of the labor market
The various components of a marketplace that deals in labor are as follows
1. The population of the labor force
It refers to the involvement of the total labor force in the market. How many participants are available to work in the market is an important query that is answered by this element of the market dealing with the labor force.
It takes into consideration all the individuals who are offering their skills and services irrespective of the industry the services will be used for. In a market place, you can find an innumerable number of the labor force that will be looking to work in different types of industries that suits their skills.
It is the population of the labor force that counts as an essential component
2. Applicant population
It refers to the individuals who are interested in applying for a specific job that will be based on the special skills they have. For instance, a worker is good at designing websites; then, he will look at the related job profile where he will be able to use his expertise to maximum advantage.
The buyer in the market place will look at all the individuals who are offering services that he needs for a specific job profile. After considering their skills and qualifications, he will choose the one that he thinks the most suitable one.
The entire related job profiles for a specific job are categorized under the same applicant population.
3. Applicant pool
The most critical component of the labor market model is the applicant pool. It refers to the total number of individuals who have shown an interest in a specific job position and sent their resume for it.
It is often described as the first, or the initial stage of the recruitment/hiring process where the organization advertises for a post and interest applicants send their resume so that they can be selected for the next phase of the interview process.
It is the human resources department that receives applications in an organization and determines who the applicants that will be suitable for the job position and invite them for further screening are
4. Individuals selected
The fourth and the last component of the marketplace that deals in labor are the individuals selected. The process is long and tedious, where all the applicants are screened through various forms of interviews and judged on several factors and qualification criteria.
This step means that an individual or several individuals have passed the screening and have been hired for the jobs in question.
Understanding the labor market analysis
Labor market analysis is one of the most crucial parts of the hiring process in an organization. It assists in finding the most qualified person for the job and ensures that the company offers a competitive package of compensation to the job seeker.
The skills of a worker and compensation package should match to retain the competent employee in the firm and continue with its productivity.
The analysis includes the following steps
- The first step of the analysis is to identify the markets for a specific position. It looks at the available human resources to find the appropriate labor who can fit the specific position
- The next step of the analysis involves checking the salaries for a particular position in the market. The process includes looking at the market and finding similar positions to know whether the salary rates offered by an organization are at par with the ones being offered by other organizations for that same position in the market.
- The organization looks at the market to determine the market trends so that it can know about the pay practices of the rival organizations and how they are compensating their labor.
- In this step of the analysis process, the organization works towards making adjustments in the structure of positions and salary packages. It looks at the available information and checks the salary rates offered by other organizations. The human resources department then tries to analyze if there is a need for adjustment and, if required, makes viable suggestions and recommendations. This step helps in the restructuring of various positions and roles in an organization.
- The last step of analysis is consulting with the management to identify their workforce needs.
The labor market is the nominal market where employers and workers find willing laborers and paying employers, respectively. It is the place where the wage rate is determined to suit the needs and requirements of both the buyer and seller.
There are various types of labor in the market, and it all comes down to the demand that will decide the supply factor.