ABSTRACT
In this chapter, the authors take a detailed look at labor markets. They explore how labor markets function, including some factors that make labor markets rather unique. The theory of dual labor markets is based on the idea that there can be different sectors within a labor market. The labor demand curve may shift if there is a change in the demand for the good or service that it is used to produce, if technological developments alter the production process, if the number of employers changes, or if the price or availability of other inputs changes. In the neoclassical labor model, the demand for labor—the employers' willingness to pay for different types of labor services—is solely a function of how productive workers are. In the neoclassical model, the main reason for variations in labor productivity, and hence in wages, is human capital. Different levels of human capital often result from different levels of investment, in terms of education and training.
