What is a Job Market?

The job market is the group of individuals seeking employment within an economy.

How Does a Job Market Work?

As with any market, there is a supply and a demand for employment opportunities that directly affects wage and salary levels. Labor supply and demand depends on an economy's unemployment level. A low unemployment rate places upward pressure on wages and salaries because employers compete with one another for a smaller number of job seekers. Conversely, a high unemployment rate forces wages and salaries down because a larger number of job seekers compete with one another for fewer available jobs. Assuming a constant supply of jobs, this phenomenon can be expressed graphically as follows:

job market graph

The of the red demand curve to the right represents a decrease in the unemployment rate. This results in an upward shift in wages and salaries on the y-axis. Similarly, a shift to the left would suggest a rise in the unemployment rate and a commensurate decline in wages and salaries.

The overall wage and salary levels in the job market represent an average of multiple industries and types of work. At a given point in time, the supply and demand for labor in the job market can vary from sector to sector.

Why Does a Job Market Matter?

Wage and salary levels set by the job market are an important indicator for analysts and economic policy makers. More important, the job market fosters economic productivity by creating jobs and cycling money through the economy via wages and salaries.