**2. Key assumptions of the competitive labor market model**

Competitive labor markets are similar to competitive goods and services markets. **Table 1** compares the assumptions in competitive labor markets and


**Table 1.**

*The key assumptions in competitive labor markets and competitive goods and services market.*

competitive goods and services markets. There are four key assumptions we need to make in order to simplify our analysis:


Notice that those simplifying assumptions of the competitive labor market model are not (entirely) realistic. For example, in reality, workers have different training, level of skills, and experiences. Therefore, they are not homogenous, especially in terms of productivity. The information in the labor market is also not likely to be perfect. It is challenging for firms to evaluate a work's productivity during the interview. Moreover, workers are also not likely to know the wage a firm is willing to offer. Nevertheless, the model provides a good description of how the labor market work. It can help us to focus on and understand the essential labor market mechanism.
