# Labor Markets and Income

## Introduction to Labor Markets and Income

In a market economy like the United States, income comes from ownership of the means of production: resources or assets.  More precisely, one’s income is a function of two things:   the quantity of each resource one owns, and the value society places on those resources.
Recall from the chapter on Production, Costs, and Industry Structure, each factor of production has an associated factor payment.  For the majority of us, the most important resource we own is our labor.  Thus, most of our income is wages, salaries, commissions, tips and other types of labor income. Your labor income depends on how many hours you work and the wage rate an employer will pay you for those hours.  At the same time, some people own real estate, which they can either use themselves or rent out to other users.  Some people have financial assets like bank accounts, stocks and bonds, for which they earn interest, dividends or some other form of income.  

Each of these factor payments, like wages for labor and interest for financial capital, is determined in their respective factor markets.  For the rest of this chapter, we will focus on labor markets, but other factor markets operate similarly.  Later in Chapter 17 we will describe how this works for financial capital.  