Labor Economics

Labor Economics seeks to understand the functioning and dynamics of the markets for wage labor. Labor is a commodity that is supplied by laborers in exchange for a wage paid by the demanding firms. Because laborers exist as parts of social, institutional, or political system, labor economics is often regarded as a sociology or political science.

Labor markets or job markets function through the interaction of workers and employers. Labor economics looks at the suppliers of labor services (workers) and the demanders of labor services (employers), and attempts to understand the resulting pattern of wages, employment, and income. These patterns exist because each individual in the market is presumed to make rational choices based on the information that they know regarding wage, desire to provide labor, and desire for leisure. Labor markets are normally geographically bounded, but the rise of the internet has brought about a "planetary labor market" in some sector.

Labor is a measure of work done by human beings. It is conventionally contrasted with other factors of production, such as land and capital. Some theories focus on human capital, or entrepreneurship, (which refers to the skills that workers possess and not necessarily the actual work that they produce). Labor is unique to study because it is a special type of good that cannot be separated from the owner (i.e., the work cannot be separated from the person who does it). A labor market is also different from other markets in that workers are the suppliers and the firms are the demanders.

There are two sides to labor economics. Labor economics can generally be seen as the application of microeconomic or macroeconomic techniques to the labor market. Microeconomic techniques study the role of individuals and individual firms in the labor market. Macroeconomic techniques look at the interrelations between the labor market, the goods market, the money market, and the foreign trade market. It looks at how these interactions influence macro variables such as employment levels, participation rates, aggregate income, and gross domestic product.

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