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The Labor Market, Supply and Demand

By: Walter Martínez

wmartinez@deloitte.com

 

Labor demand is comprised of companies or employers that purchase services.  Labor supply is comprised of the employees who sell their services.  The interaction of both determines the salaries in the labor market, which is where individuals exchange services.

 

We can classify the labor market into primary labor, in which salaries are high and turnover is low; and secondary labor, in which salaries are low and turnover is high. In order to guarantee the operation of the primary market there is a tendency to keep salaries high; however, good pay can maintain, but not ensure, constant efficiency and motivation of the employees.

 

Nowadays, labor supply and demand can be compared to the purchase and sale of products, since as supply increases, demand decreases its price; in this case, the salary and vice versa. Employees prefer to work when the salary is high and organizations prefer to hire when the salary is low, but at the same time demanding high competencies.

 

Today, professional training is a primary factor considered by companies when hiring personnel.  Along with the necessary skills, companies require experience in the field.  Many times this is complicated by the fact that many students prefer to finish their university studies prior to starting to work.