Labour Market And Labour Market Segmentation

Definition Of Labour Market

A labour market is the place where workers and employees interact with each other. In the labour market, employers compete to hire the best, and the workers compete for the best satisfying job.  A labour market in an economy functions with demand and supply of labour. In this market, labour demand is the firm’s demand for labour and supply is the worker’s supply of labour. The supply and demand of labour in the market is influenced by changes in the bargaining power.

Labour Market Segmentation

Modern labour market segmentation theory arose in the early 1960s. It opened the eyes of many economists viewing the labour market as just a market with people with individual characteristics of education and motivation as well as technology playing a major factor in terms of producing output. This idea of non-competing groups has been developed in theories that are identified under the general label of labour-market segmentation theory.

The theory of labour market segmentation contrasts to the views of neo-classical economic theory,which posits the existence of a unified market for labour, consisting of buyers and sellers in open competition with each other. The labour market is seen as functioning in the same way as other markets. In this model, the only difference between different workers wages and conditions arise from individual difference in their human capital (skills,experience,education) or tastes. On the latter,as part of the theory of compensating wage differentials those who prefer risky or dirty jobs receive higher wages or salaries than those who take safe or clean ones. Put another way,difference in compensation for labour rise only on the supply side. In the theory of labour market segmentation,there exists important difference on the demand side which imply difference in compensation and the like that are not explained by individual workers characteristics.