Labor market definition for employers
The labor market is another way of talking about the job market. It is the available amount of supply and demand or, in other words, employment and labor. Within the job market, employers represent the demand because they are seeking employees. The number of employees available within the labor market represents the available supply.
Why employers need to understand the labor market
The labor market is a tool that provides employers with information about how to run their company if they understand how it works. When employers know how to look at the job market for information about hiring practices, they gain insight into:
- How many employees they should hire
- What skills are required for employees to succeed
- What salaries or wages they should offer employees to remain competitive
- How to invest their budget to benefit employees in terms of training, benefits programs and more
- How to train employees to stay current
With an understanding of the labor market, employers can also measure valuable metrics such as rates of employee retention. They can look at turnover rates within their own company and then compare those numbers to industry averages to see whether they align with typical rates or if there is a need to improve employee retention strategies.
When you as an employer know how to look at the current job market for labor market information (LMI), it’s easier to identify gaps in your workforce. With the data, you can adjust hiring practices, review workplace conditions and make decisions from a place of confidence.
What is LMI?
LMI is a term for data that helps employers, employees and job seekers make decisions about the job market. Based on available information about jobs in their industry, people can use LMI to make choices about education, skills and pay. LMI provides employers with insight into hiring trends, economic forecasts and more.
Breaking it down: What is the labor market?
Once you understand what the labor market, or job market, is on a basic level, it’s time to dive deeper. The primary elements of the labor market are supply and demand, which comes down to the availability of jobs and the number of people seeking those positions. The labor market can be broken down into groups of people or populations. Each of these groups represents a portion of the job market.
The labor force
The labor force is the total number of people who are able and willing to work. This population is the total number of people contributing to the supply aspect of the labor market’s “supply and demand” model, regardless of industry or skills.
A healthy supply in the labor market relies on there being a significant number of people in the labor force. If you do not have a large enough group of people willing and able to work, there is a labor shortage, which results in businesses struggling to fill positions. A labor shortage is detrimental to the productivity of a business, so employers benefit from having a sufficient labor force to pull candidates from.
The applicant population
The applicant population is a narrower group of people who are actively applying for a specific job. These people have a specific skill set or educational background that uniquely qualifies them to work in the field to which they are applying.
If you are an employer, knowing what the applicant population is within your industry helps you determine how competitive the job market is. A large applicant population means your employment opportunities are coveted and applicants may be willing to take shorter contracts or less competitive salaries than in a job market where the applicant population is limited. In these scenarios, a limited applicant population means your pay must be competitive and your company may need to offer flexible time off policies or other benefits in order to attract and retain top talent.
The applicant pool
While the applicant population is the number of people who are qualified and able to apply for your specific job postings, the applicant pool represents the portion of the labor force that actually goes through with that application process. The number of people in the applicant pool is significantly smaller than the applicant population. These individuals enter into the first stage of the hiring process by submitting their resumes, cover letters and other materials for consideration. The applicant pool hopes to ultimately join the selected population.
In the grand scheme of the labor market, the applicant pool represents a niche group of people who directly affect the future of your company. This population is actively seeking employment in your industry and believes they have the necessary skills and qualifications to add value to your organization. Knowing how big your applicant pool is at the beginning of the hiring process helps you determine how strenuous and long the hiring process may be and how many candidates you are likely to narrow the selection process down to.
For example, if you receive only 10 applications for a position, you’re likely to have a brief, efficient interview process with only your top contenders. However, for a position where the applicant pool is over 100 people, you will have to conduct several rounds of phone interviews, virtual interviews and in-person interviews to narrow it down to your top candidates.
The selected population
The selected population is the smallest group within the labor force in relation to your organization. This group of individuals has ultimately made it through the application process successfully and is joining your team in some capacity. The selected population may be just one person at times, filling a single vacancy in your company, or it could be an entire group of people such as a team of interns coming in for the summer.
The size of your selected population is critical to consider when structuring your company and its Human Resources (HR) department. Onboarding employees is an involved process that requires you to educate them on company policies, their rights, benefits packages and the technical aspects of their job. When you can accurately anticipate what your selected population is going to be, you can arrange an onboarding team that’s prepared to welcome new hires to the company in a memorable way.
Exceptional employee onboarding practices can improve employee retention by 82% in the long term. When your new hires feel supported, safe and valued during the onboarding process, they’re more likely to succeed at your company and think about staying with you for years to come.
Use labor market trends to your advantage
As an employer, understanding the labor market is essential to the success of your department and company. Following current trends in the job market allows you to make informed decisions about your hiring practices, salaries for your employees and so much more.
