Equilibrium in a Perfectly Competitive Market

The equilibrium market wage is W, and the equilibrium number of workers employed is Q. At wage rates greater than W, the demand for labor would be less than the supply of labor, implying that there would be a labor surplus. At wage rates belowW, the demand for labor would be greater than the supply of labor, implying that there would be a labor shortage. A labor surplus is eliminated when some workers agree to sell their labor for lower wages, thereby driving down the market wage rate to W. A labor shortage is eliminated when some firms agree to employ workers at higher wages, thereby driving the market wage rate up to W. At the equilibrium wage rate, there is no surplus or shortage of labor.