Labor economics seeks to understand the functioning and dynamics of the market for labor. Labor markets function through the interaction of workers and employers. It is a study of the interactions and relationships between the employer and employees from the economical aspects. Labor economics is used to research the employer’s decisions and their impact on the employees and other factors related to labor as wages, prices, profits, productions, working environment etc.

laborLabour economics is a branch of economics and is used to measure the labour and done work by it in respect of productions and investment capital. It assumes employees as human capital and tries to get maximum benefits from the human capital as well as financial capital. Labour economics majors the labour in hours worked and efficiency while for compensation of labor it uses the terms of— wage, earning, total compensation, income and opportunity cost, etc. Labour economics is based on the study of labour market and production made by labours. There are two ways to measuring and analyzing the labour market— Macroeconomics of labour market and Microeconomics of labour market.

Macroeconomics of labour market: Microeconomics is used to measure the national labour economy and studies the variable factors of labour market like employment ratio, unemployment ratio, vacant vacancies, labour force and national policies for labours. There are several types of unemployment— Frictional unemployment, structural unemployment, natural rate of unemployment and demand deficient unemployment.

Microeconomics of labour markets: Microeconomics follows the traditional thought of business that labour market is similar as other markets and is governed by the theory of supply and demand in quantity and price. But it has some differences too which restricts the rule of supply and demand to control the market completely. It can be understand through microeconomic models which are— Neoclassical microeconomic model — Demand, Neoclassical microeconomic model — Supply, Neoclassical microeconomic model — Equilibrium.