In a competitive labor market, the price of labor—the wage rate—is determined largely by supply and demand. Workers are paid according to their productivity, the level of output produced. Competitive demand for labor drives wages up. Some firms attempt to cut labor costs by substituting machines for people. Labor supply comes from households. The higher the wage, the larger the quantity of labor supplied. The equilibrium wage is the wage rate that produces neither an excess supply of workers nor an excess demand for workers.

     Jobs can be classified into four skill levels. Unskilled labor requires no specialized skills or training. Semiskilled labor requires minimal specialized skills and education. Skilled labor requires specialized skills and training. Professional labor requires advanced skills and education. Workers with higher skill levels usually receive higher wages. In addition, union members tend to earn higher wages than nonunion workers in similar jobs.

     In the 1960s, Congress outlawed wage discrimination based on gender or race. Yet women still earn about 75 percent of men's earnings, and minorities tend to earn lower pay than whites. The glass ceiling, an unofficial and invisible barrier in some workplaces, prevents some women and minorities from advancing in certain companies.