Making the labour market work better
A Capita/DfES case study

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Page 2: The nature of the labour market

In the labour market employers have to compete with each other for human resources. Workers 'supply' some of their time and effort to organisations for a wage while the organisations 'demand' labour in order to produce goods and services. The labour market plays a very significant role in resource allocation. The interaction of demand and supply determines the price of labour which is known as the wage rate. Wages are most likely to be high in those industries and jobs where the demand for labour is high and where the supply of labour is relatively limited.

The final price (wage rate) is set at a point where the demand for labour is matched by the supply. Even in perfectly functioning markets, there would still be some unemployment as new and more efficient forms of economic activity displaced old and less efficient ones and as people changed jobs.