This is a geographical location (national or international), in which labor transactions take place. Workers find jobs and employers find workers. In the labour market, employers compete to hire the best, and the workers compete for the best satisfying job.

What actually happens in the labor market?

The labor market is extremely important to a well-functioning economy. All the goods and services that are available to consumers come from the labor market. If there is a shortage of workers, there may also be a shortage of products or services.

An example of the importance of the labor market materialized during the global COVID pandemic in 2020 and 2021. When the economy began to reopen, many people didn't return to low-wage jobs like food service and retail. This caused a massive shortage in workers, which resulted in many places reducing hours, closing randomly or cutting back on products and services they offer.

When the labor market doesn't have many jobs compared to the number of people who want jobs, it causes a shortage. This can be a good thing for employers because they will get a better choice of workers as well as be able to limit benefits and salaries.