What Is Labor Economics?

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  • Written By: Jessica Ellis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 January 2020
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Labor economics is a form of economic philosophy that examines the factors involved in labor. The field of labor economics is quite wide; analysis of the labor market may include not only economic considerations but sociological, psychological, and statistical issues as well. Some of the issues explored through labor economics include the influences of education and social dynamics on labor, relationships between the labor force and employers, and wages.

Probably the most important area in labor economics is the relationship of workers and employers. Workers and employers have an intricately bound contract of supply and demand: workers supply skilled labor that employers demand, while employers supply wages and benefits that workers demand. How this relationship works involves many different factors including geographical and social considerations, the function of other related markets, and evolution in economical philosophy.

Labor economics is often described as being either microcosmic or macrocosmic. Microcosmic economics examines and analyzes individual issues, such as the worker-employer relationship in a single company. Macroeconomic issues involve analyzing the labor market through its relationship to the economy, by comparing it to similar but distinct segments of the economy such as foreign exchange.


Macrocosmic labor economics can be used to determine and analyze issues such as unemployment. If the housing market crashes, that may cause an upswing in labor unemployment as new construction jobs drop off. Labor economics does not study unemployment only in terms of how many people are without jobs, but also probes deeper issues such as what type of unemployment is occurring and what factors may be contributing or causing unemployment levels. Unemployment issues in economics can be vital to determining business strategy and government policy regarding labor efforts.

Another important consideration in this area of economics is the determinacy of wages. Discovering whether a worker is being paid a fair and sustainable price for his or her labor is a complicated process that involves many issues. Market wage range for the job, cost of living determined by geography, the price of education or training for the job, and additional compensation such as health benefits must all be considered before reaching a conclusion about a fair wage.

The labor market is the area of an economy where goods are produced, technological innovations made, and a large portion of people make their daily wages. For this reason, the study of economics from the point of view of labor is an important part of total market analysis. Not surprisingly, given the importance of the results, there are many different theories as to how a labor market should be examined. With nearly as many viewpoints as there are economists, pinning down any concrete data about the labor market can be an exhausting and near impossible task.


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Post 1

Labor is not the only factor at play in the larger field of economics. Two other major players are land and - more importantly - capital. Any comprehensive examination of an economy will need to account for all three.

In fact, I would go further, and say that examining labor economics without at least acknowledging the influence of these two is to distort whatever findings and theories may arise.

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