Labour Market Theories and Education

Abstract

This chapter explains the labor market theories and education. Labor market theories are explanations of how wages are determined and workers allocated to different jobs. They provide explanations of why one group of workers, such as skilled workers, earns more than another group, such as the unskilled. They also provide a basis for the understanding of labor market problems such as discrimination, poverty, and unemployment, and suggest policies that could alleviate them. The current neoclassical theory of the labor market represents the mainstream approach to labor market analysis. This theory had its origins in the work of the early neoclassical economists such as Alfred Marshall and John Bates Clark during the late nineteenth century. The concept of a market for a particular good is something of a theoretical abstraction which enables economists to analyze exchange between those people or firms who wish to buy the good, and those who wish to supply it. In the labor market this exchange relationship is between firms who wish to employ labor to produce output, and workers who are prepared to work at the going wage rate.