A labor market is a market where people offer their skills to employers in exchange for wages, salaries and other forms of compensation. Participants in the labor market include any person who is seeking to work for compensation and any person or organization that is looking for people to perform labor.

Under the standard labor market theory, labor is like any other resource. Generally speaking, the market determines the allocation of labor and its costs. In other words, the market determines where people will work and how much they will get paid. Let's take a look at the theory of labor market allocation.