LABOR MARKETS have a direct and intimate effect upon the lives of most adult Americans. The United States has become a nation of employees who are dependent upon the income from wages and salaries earned at jobs; this situation is quite unlike that of a hundred years ago, when independent farmers, small businessmen, and individual craftsmen dominated the American economic structure. How labor markets work and how well they perform their functions are not only matters of importance to those who participate in them; they are vital to the performance of the entire economy.
Labor economics is that branch of general economics that deals systematically with the economic forces operating within labor markets. It uses the tools of economic analysis and research to study the characteristics of labor supply, labor demand, the price of labor (wages), and employment.
Labor economics is necessarily concerned with the institutions through which the forces of supply, demand, wages, and employment are expressed. There are four major types of institutions: households, firms, unions, and governments.
Households (both single persons and multi-person families) are, from an economic point of view, sources of labor. As consumers these decision- making units, living within a universe of interrelated prices and markets, purchase food, clothes, entertainment, and other goods and services in