Question

What is a perfectly competitive labor market?

Short answer

In a completely competitive labor market, businesses can hire as many people as they want at the going market wage.

Step-by-step solution

Definition

Perfectly competitive labor market:

Each firm is a wage taker in a completely competitive labor market, where the wage rate is set by the industry rather than by the individual firm.

Explanation

A perfectly competitive labour market is one in which businesses can hire as much workers as they want at market rates. Consider secretaries in a big metropolis. Employers who require secretaries will most likely be able to hire as many as they require if they pay the going salary rate. This means that the market will determine the true equilibrium pay, and the labor supply to each particular firm will be completely elastic at the market rate.

Conclusion

Therefore, this allows businesses to hire as many workers as they want at market rates.