The demand for and supply of specific skills meet in the market to determine
wage rates for particular jobs. Here as elsewhere in economics, demand,
supply, and price are interdependent. Wages help to call forth labor supply
and to determine where particular workers will seek employment. Wage rates
also, given particular demand curves for labor, determine how much labor each
employer will be willing to hire.
Apart from its wage-determining functions, the labor market is important in
other respects. Whether employers who need labor and workers who need jobs
are able to locate each other quickly, whether square pegs drop readily into
square holes, whether workers’ skills adapt themselves slowly or rapidly to
trends in labor demand-all affect the efficiency of the economy.