One of the fundamental parts of the modern economy in all countries of the world is the labor market. It is difficult to underestimate the role of this mechanism, since its meaning is that billions of people who sell their labor receive livelihoods, and millions of organizations receive the personnel they need to operate. That is why the labor market is necessary in the first place. That is why it is necessary to know its essence, significance and features not only to economists and owners of large firms, but also to absolutely all people.
Labor market concept
The labor market is the platform where the employer and the applicant meet and conclude a contract of employment. This is a kind of system of mutually beneficial relationships, social and economic, between the two entities.
One side of a contract of employment is a person in need of a workplace. The other is, as a rule, a legal or natural person who needs professional personnel or labor force and who is able to employ a job seeker.
As in any other market, there is a product here - it is labor. A job seeker acts as a seller of his knowledge, time, abilities and skills. And he wants to receive remuneration for the proposed product in the form of wages.
Market elements
Market elements are:
- job seeker and employer;
- supply and demand, their ratio;
- laws governing the market mechanism;
- organization of employment services;
- career counseling services, enterprises to improve the skills of workers;
- temporary employment organizations (seasonal work, home work, etc.);
- a system of state financial support for citizens who have lost their job reduction, transferred to another place of work, or simply unemployed.
Applicant and employer as market entities
The following groups of able-bodied citizens are candidates on the labor market:
- citizens who do not have a workplace and who want to find a job; perhaps people who have already registered with the employment center, or people who are just looking for a job on their own;
- people who work, but want to change their place of work for any reason, choosing another position;
- able-bodied citizens on the verge of dismissal.
The employer in this market may be:
- various forms of enterprises and organizations (legal entities);
- individual entrepreneurs (individuals).
Market functions
Why is the labor market necessary? It is easy to understand by considering its main task and the functions arising from it. So, the main purpose of this mechanism is to organize full employment of the population with the satisfaction of the needs for wage workers at enterprises and organizations.
The market in question achieves this with the following functions:
- organization of meetings of representatives of enterprises and applicants;
- ensuring healthy competition among market participants;
- establishing equilibrium wage rates.
The market is undergoing the process of agreeing and signing a contract of sale of human labor on mutually beneficial conditions. A well-functioning mechanism contributes to the most useful use of the labor potential of people, which means that the economy is in positive territory at the macro level. Labor market, therefore, performs the function of regulation.
Having examined in more detail the labor market, its concept and functions, one can ask the question of what contributes to its appearance in countries and what its current state is.
Economic prerequisites for the formation of the labor market
To understand why the labor market is necessary, you need to know that it is formed in any country primarily with the advent of economic prerequisites. These are:
- Liberalization of all areas of the economy. Its essence lies in the right to private property, to the availability of means of production and land in their own possession.
- Recognition of a person’s freedom of choice in a professional, labor plan. That is, everyone can decide where and how to work for him, for what payment and whether to work at all. At the same time, forced labor is prohibited in the country, except for those imposed as punishment by justice.
- Freedom of enterprise as an activity. Each person in the state, independently or with a group of persons, has the right to freely open his own business.
Thus, the economy influences the formation and functioning of the labor market. The labor market cannot be formed outside of it.
Social background of market formation
In addition to economic aspects, the formation of the labor market also requires sociological prerequisites, which are the formation of inequality in terms of income, length of service and qualification of work, degree of health and level of education between people. And also the difference in mental abilities and personal qualities (endurance, physical strength, charm, etc.).
This kind of social inequality should be balanced by state authorities through federal and municipal programs to protect the population from unemployment, thanks to pension payments, subsidies for low-income families and health insurance.
Legal prerequisites for the formation of the labor market
The legal prerequisites, due to which the labor market and the mechanism of its functioning are formed, include laws and government orders that can protect the population economically and socially, aimed at the rights and freedoms of the individual. In the Russian Federation, for example, these are:
- Constitution of the Russian Federation, Art. 7, which states that the Russian Federation is a social state whose goal is to create conditions that ensure a decent life and free development of people.
- The Labor Code of the Russian Federation, which lists and explains the rules of control and regulation of labor relations.
- Civil Code, which defines the legal form of business.
- Federal Law No. 10321 “On Employment in the Russian Federation”, Federal Law No. 207-FZ “On Collective Bargaining Agreements and Agreements”, Federal Law No. 10-FZ “On Trade Unions, Their Rights and Guarantees of Activity” and others.
Supply and demand in the labor market
From the definition of the labor market and the description of its subjects, it becomes clear that this mechanism is based on such economic concepts as supply and demand. Demand is the availability of open vacancies, it displays the capacity of the market. And the offer is the number of unemployed who are ready to sell their labor to the employer. Whatever country is organized and whatever the labor market is, supply and demand in the labor market always exist. They change depending on external and internal factors.
Thus, demand in the labor market depends primarily on the level of wages. Under normal conditions, its connection with ideal competition is inversely proportional to the price of labor. Other economic facts also affect the level of demand, such as, for example, the demand for goods produced by an enterprise, the level of its technological equipment, or the price of capital of a company.
The supply of labor, on the contrary, is directly proportional to wages. That is, if wages increase, the number of people who want and are able to sell their professional skills at a given cost increases.
In addition to the level of wages, the supply of labor is affected to varying degrees by the number of able-bodied people, the number of hours allocated to work per day, week, year, and the professional qualifications of the working mass.
Demand and supply in the labor market form the market environment. She, with their different ratio, can be as follows:
- with a labor shortage (the market is experiencing a shortage of labor resources);
- with labor surplus (the market is full of labor offers);
- balanced (supply and demand are balanced).
Subjective and objective influence on the functioning of the labor market
Undoubtedly, the state is able to regulate the mechanism of functioning of the labor market. This action can be provided at various levels of government:
- federal laws (for regulation at the national level);
- regional or local (to regulate local labor markets according to their specifics).
Also, public organizations, such as, for example, trade unions, can have an impact on the labor market.
But not only on the subjective regulation of employment and unemployment depends on how the labor market will function. Supply and demand in the labor market undoubtedly also play a significant role in this process. Moreover, their influence will be independent of the will and opinion of people, as it will be based on economic laws. That is, it will be objective.
Labor market models
What could be the labor market? Market classification may be as follows:
- depending on the degree of competition (fully competitive market, monopsony market);
- depending on state features (Japanese model, US model, Swedish model).
Fully competitive is the labor market, which includes a large number of firms and organizations competing with each other, as well as a lot of workers who come into confrontation with each other. With this model of the labor market, neither enterprises nor workers can dictate their own conditions.
Monopsony is a labor market, which is a monopoly on the part of one of the buyers of labor. With this model, almost all employees are employed in the same enterprise, with no choice. Therefore, the company dictates its own rules, including the establishment of wages. This model is typical for small towns where one large plant or organization operates.
The Japanese labor market model is characterized by a system of lifelong employment, that is, the employee works in the same place until he reaches retirement age. At the same time, his salary and social benefits directly depend on the length of service. Further training and career growth occur strictly according to plan. If the organization needs to carry out a reduction, then the workers do not quit, but simply transfer to a short working day.
The US labor market model is based on the decentralization of legislation in terms of employment and assistance to the unemployed. Each state adopts its own rules. In organizations, there is strict discipline and disloyal attitude towards employees. Career growth does not take place inside the company, but by leaving for another company. Unemployment is very high in America compared to other countries. Such is the US labor market, and the causes of unemployment stem from its features.
The Swedish labor market model is characterized by a large state influence on the employment sector. Here the minimum level of unemployment due to its prevention.
Labor market specifics
It is worth noting that the modern labor market and its features in each state, in each region and even in every village differ. But the main distinguishing features of all markets is that the subject of sale is labor. The fact that the seller and the goods cannot be separated from each other, as well as the fact that the goods themselves cannot be stored when they are not needed.
The specificity of all these markets is the impossibility of establishing wages lower than specified by the state.
Why is the labor market necessary? It is easy to understand by examining its concept, goals, models and background. In general, we can say that it is the basis of a market economy. So, it is able to dictate its own laws.