In a competitive labor market, wages are determined by the
supply of and the demand for labor. In such a market, both the firms who hire the labor and the
workers who supply it are price takers. Neither can really impact the price of labor (the
wages).
In such a case, wages are determined solely by supply and
demand. An influx of immigrants, for example, would increase the supply of labor and drive down
the price of labor. An increase in aggregate demand for goods and services would tend to drive
up the price of labor because it would increase the demand for labor.
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