Criticism of the Supply-and-Demand Approach to Labor Markets

Not all economists would accept the supply-and-demand analysis of labor markets, employment and wages. There are several criticisms of the supply-and-demand model of labor markets and the John Bates Clark model of the business firm. Each of the criticisms could lead to an alternative analysis of labor markets. Since this is not a text of labor economics, we will just mention the criticisms, but not attempt to sketch the alternative analyses. Critics mention the following points, among others:

Wages and income distribution may be influenced or determined by bargaining power.
- Labor unions can create bargaining power for employees
- Employers may limit wages because of limited competition for employees and by means of wage discrimination.
Perceptions of fairness may influence wages and working conditions.
Productivity itself may be influenced by wages and working conditions.
The Marxist view is that employment is a social relationship based on exploitation, and that wages and labor cannot be understood except in those terms.