Labor market

Labor economics seeks to understand the functioning of the labor market. Labor markets function through the interaction of workers and employers. Traditionally, labor markets have been thought to be perfectly competitive. That is, there are many workers and employers have perfect information and there are no transaction costs. The competitive framework leads to clear conclusions - workers earn their marginal product of labor.

Recently, economists have begun to focus on deviations from perfectly competitive labor markets. These include job search, efficiency wage models and oligopsony? / [monopsonistic competition]?.