What is the Labor Market?
The labor market is the place where the supply and the demand for jobs meet, with the workers or labor providing the services that employers demand. The worker may be anyone who wishes to offer his services for compensation, while the employer may be a single entity or an organization that is in need of an individual to do a specific job or to complete a task. The worker is then comparable to a seller while the employer is the buyer.
A common factor that connects the two entities is the salary or wage that is agreed to be received by the worker from the employer. In short, this is where workers can find work that suits their skills and qualifications and where both agree on the wages, benefits, and other forms of compensation for the worker.
In the labor market, it is assumed that workers move to where there is a demand for their skills, whether this is in their local region or abroad. Moreover, they are also replaceable, which means that a person who can do the job better can be tapped to take over the other worker’s job. Furthermore, salaries are not fixed, meaning they can go up or down, depending on the worker’s performance. Wages or compensation is the highest motivating factor in the labor market.
Components of the Labor Market
The labor market comprises four components: the labor force population, applicant population, applicant pool, and the individuals selected.
1. Labor force population
The labor force population or labor force participation refers to the number of individuals who are available to work in a labor market. It considers all workers who are offering their skills and services for employment regardless of the industry they are in.
2. Applicant population
The second component is the applicant population which refers to the people who are applying for a particular job that suits their expertise and skills. Recruiters look first at the labor market and then look next for individuals who meet the skills and qualifications set for a particular job. For example, the people looking for IT, graphics design, and similar jobs belong to the same applicant population, which is targeted by recruiters looking for this type of professional.
3. Applicant pool
The third component is the applicant pool, which is the actual number of people who initially signified their interest in applying for a particular job by sending in their resume. It may very well be considered the first part of the selection process where the recruitment department of a specific organization receives applications and screens them to determine who advances to the next round of screening.
4. Individuals selected
The fourth component is the individuals selected, which simply means the individual or individuals who’ve made it through the screening process and have been hired for the job. Of course, this is judged based on a number of factors, and the person is screened against a carefully determined set of qualifications.
Understanding Labor Market Analysis
Labor market analysis is an integral part of an organization’s recruitment process because it not only helps it find the most qualified workers for the jobs that it offers but also ensures that it provides a competitive compensation package to its workers. This is important in order for an organization to be able to keep its competent workers and, thus, continue its productivity.
Generally speaking, labor market analysis involves the following processes:
- Identifying the various labor markets for a given type of position. It involves looking at the appropriate labor market based on a specific position.
- Checking the market for salaries for a common position. The process involves checking similar positions in the labor market in order to determine if an organization’s salary rates are at about the same level.
- Determining market trends. This step answers questions as to how other organizations are compensating their workers, including their pay practices.
- Adjusting salary packages or structure of positions. After checking the salary rates of other organizations and finding out if there is any need for adjustments, the department then makes recommendations for such adjustments and restructuring of positions in the company.
- Making consultations with management. This process involves sitting down with management to determine their workforce needs.
What is Labor Market Information (LMI)?
Labor Market Information (LMI) is basically everything there is to know about a specific labor market. Information about occupations, their locations, wages, supply and demand, and demographics are all included in the LMI.
How is the LMI helpful?
The LMI is very helpful for people who are looking at getting a job that is sustainable. A worker who looks at the LMI enjoys a higher chance of getting recruited because he or she knows what industries or jobs are exactly looking for.
For example, an individual who finds out that the hospitality industry is looking to hire 1,000 food and beverage specialists over the next two years decides to take up training and short courses on the subject. By the time he applies for the job some six months later, his chances of getting recruited are definitely higher than that of the person with lesser credentials. It further means that he will receive a better compensation package than the rest precisely for the qualifications and certificates that he holds.
In summary, LMI helps a worker identify the demands of the labor market and helps him be equipped with the right qualifications.
Thank you for reading CFI’s guide on Labor Market. To keep learning and advancing your career, the following CFI resources will be helpful: