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Job Market

Where individuals search for job opportunities and employers look for employees

What is the Job Market?

Rather than a physical marketplace, the job market is where the supply (individuals who are actively seeking jobs) and demand (businesses) of the labor force, as well as other factors, interact. The factors include the economic activity level, industry trends, the need for certain skill sets or education level, etc. For example, the rapidly growing information technology sector continues to drive the demand for computer engineers with strong programming skills.

 

Job Market

 

From the micro-perspective, understanding the job market helps individuals to assess their competitiveness and career plan better. From the macro-perspective, the health of job markets reflects the overall economic condition and trend.

 

Summary

  • The factors that impact job markets include the supply and demand of the labor force, economic activity level, industry trends, need for certain skill sets or education level, etc.
  • The introduction of a minimum wage above the equilibrium wage level would lead to an oversupply of workers and unemployment.
  • The statistics provided by job markets, such as the unemployment rate and non-farm payrolls, are broadly used to indicate the overall economic health.

 

Supply and Demand in the Job Market

Similar to the markets of goods and services, job markets also follow the supply-demand mechanism. When the quantity of workers demanded is equal to the labor force available (the quantity of supply), the job market reaches its equilibrium point, and wages can be determined.

The wage level rises when the demand is greater than the supply and lowers when the supply exceeds the demand for workers. However,wages cannot always move freely. There is often a floor determined by the government, which is known as the minimum wage.

When the equilibrium wage is above the minimum wage level, introducing a minimum wage will not lead to a major impact on the job market. When a minimum wage is established at a level higher than the equilibrium wage, the quantity of demand will fall as businesses will instead try to control their labor costs by reducing the number of employees.

The quantity of supply increases as there are more active job seekers motivated by the higher wage level. It forms a gap between supply and demand and thus, leads to unemployment. Despite this drawback, the minimum wage policy can provide both economic and social benefits. By increasing the wages of low-income workers, the government can reduce its spending on social programs to support these individuals and relieve the economic inequality at the same time.

 

Supply and Demand of Job Market

 

Job Market Indicators

The Bureau of Labor Statistics (BLS) is a government agency under the U.S. Department of Labor. It is responsible for collecting, analyzing, and publishing U.S. labor statistics. The statistics include the employment and unemployment rates, labor turnover, job opening, salary data, workplace conditions, etc. The figures can be used to indicate the economic condition and the health of job markets. The unemployment rate and non-farm payroll are closely tracked by the public as economic indicators.

The unemployment rate measures the quantity of unemployed labor force as a percentage of the total labor force. It is a lagging indicator that will decrease when the economy grows and will increase when the economy enters recession.

For example, as the economy stumbled due to the COVID-19 pandemic, the U.S. unemployment rate spiked to a historical high of 14.7% in April 2020. Although the unemployment rate is closely related to the economic cycle in general, the rates in different regions and industries may experience different levels of sensitivity and lagging periods. The ratio is also criticized for not distinguishing between full-time and part-time employment.

The non-farm payroll measures the number of workers, excluding the farmworkers and some government workers, non-profit employees, and proprietors. It represents the majority of the labor force in the U.S. and is reported by sectors.

The non-farm payroll information helps identify the expanding and declining sectors. The expanding sectors appear to show a greater increase in payrolls, as the contracting sectors typically show a slower increase or even reduction in payrolls.

 

Learn More

CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)® certification program, designed to transform anyone into a world-class financial analyst.

In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:

  • Economic Indicators
  • Labor Force KPIs
  • Self-Employment
  • Wage Expense

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes!