**1. Introduction**

Just like the goods and services markets, the labor market has supply and demand. Although the labor market works similar to the goods and services markets, the stories behind the demand and supply are different. In the labor market, workers supply labor, the valuable services they contribute to producing goods and services because they need money for food, rent, and other activities. On the other hand, firms who hire labor are the demanders for labor. Without workers, firms could not produce goods and services and earn profits. For this reason, the "product" in the labor market is labor, and the "price" of the labor is the wage rate.

Modern labor markets are complex. Companies from all over the world hire many different occupations such as engineers, business analysts, construction workers, designers. Today, over 3 billion people are either working or looking for jobs in the labor market, and each of these people has different skills and experiences. How do companies decide which employee to hire and at what wage rate? How do the workers decide which company they want to work for? To answer these questions, we follow the economist's approach: simplify the problem by using a model.

In this chapter, we will construct the competitive labor market model. We will discuss the backward-bending nature of the labor supply curve and the downwardsloping nature of the labor demand curve. We then will look at how workers and firms interact in the labor market to determine how many workers to hire and at what wage rate? Immigration and minimum wage policies will be introduced, and we will discuss how these policies affect the labor market equilibrium.
