What is the labor market?

The labor market is the market in which employers seek employees and employees seek jobs. The labor market is not so much a physical place as a concept demonstrating the competition and interaction between different labor forces. It is also known as laboratory market.

The labor market can grow or contract depending on the demand for labor and the supply of available workers throughout the economy. Other factors that impact the market are the needs of a specific industry, the need for a particular level of education or skill set, and required job functions. The labor market is an important component of any economy and is directly linked to the demand for goods and services.

Employment figures are released on the first Friday of each month.

The labor market and the unemployment rate

The labor market is also directly linked to the unemployment rate. The unemployment rate is the percentage of people in the labor force who are not currently employed but who are actively seeking employment. The higher the unemployment rate, the greater the labor supply in the overall labor market.

When employers have a larger pool of candidates to choose from, they may be more picky or drive down salaries. Conversely, as the unemployment rate falls, employers are forced to compete more vigorously for available workers. Competition for workers has the effect of raising wages. Labor market-determined wages provide valuable information to economic analysts and those setting public policy based on the state of the overall economy.


The highest unemployment rate in the United States, documented in 1933.

During tough economic times, unemployment tends to rise because employers may downsize and create fewer new jobs, making it harder for people trying to find work. High unemployment rates can prolong stagnation— a sustained period of little or no growth in an economy — and contribute to social upheaval, resulting in the loss of opportunities for many people to live comfortably.

A report called the Current Population Survey can measure the state of the labor market. This is a statistical survey conducted monthly by the United States Bureau of Labor Statistics. The study includes a representative sample of approximately 60,000 households in an attempt to determine the unemployment rate of specific regions, the incomes of respondents, the hours worked by respondents and many other demographic factors.

Key points to remember

  • Employers are looking for employees and employees are looking for jobs in the labor market.
  • The labor market grows or shrinks depending on the demand for labor and the number of workers in the economy.
  • The labor market is directly related to the unemployment rate, a measure of the percentage of people who are unemployed but actively looking for work.

Example of a labor market

According to the US Department of Labor, total employment from the Bureau of Labor Statistics for nonfarm payrolls increased by 528,000 for July 2022, and the unemployment rate (a lagging indicator) fell to 3.5%. Industries such as leisure and hospitality, professional and business services, and health care all saw employment gains during this period.

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