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Questions and Answers
When talking about employment, what is the difference between a buyer’s
market and a seller’s market?
For a period during the late 1990s, the U.S. labor market had truly
become a seller’s market. As the U.S. unemployment rate dipped to near
4.0 percent, there was a substantial shortage of available labor. During
such a period, workers amass greater bargaining power, making it easier
for workers to command higher pay and greater benefits in order to get
them to remain with the same company. The manufacturing recession that
began in mid-2000 and the broader economic recession of 2001 changed the
situation tremendously. The relatively weak job growth seen since the
end of the recession (weak relative to previous recovery periods) turned
the labor market into more of a buyer’s market. Here, with higher
unemployment and a greater supply of available labor, the power of
workers is eroded. With a larger pool of potential replacements, workers
are not as willing to demand raises and increased benefits.
Given this line of reasoning, it would seem that the labor market has
changed from predominantly a seller’s market (with workers as sellers
of labor services) at the end of the 1990s, to what is largely a buyer’s
market (where firms are the buyers of labor services). More recently,
the national jobless rate has been slowly declining; however, there
remain many potential workers who have dropped out of the labor force.
Therefore, even with what appears to be a low unemployment rate – 5.4%
as of August and September – there continues to be a relatively large
pool of potential labor in the U.S.
So far, I have been focusing on the labor market as a whole. As
always, however, such an aggregate look can distort the picture. Every
particular individual’s labor market experience depends critically on
that person’s education, skills, training, geographic location,
occupation, industry, and so on. Therefore, while we can characterize
the broad labor market has becoming more of a buyer’s market since the
late 1990s; specific labor skills remain in high demand. For an
individual, constantly working to improve your human capital (education,
skills, etc.) is probably the best way to ensure that your skills will
be in demand and that the relevant labor market for you is a seller’s
market.
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