In general, the equilibrium price is determined through the forces of demand and supply. That is, the equilibrium price is the price at which the quantity demanded is equal to the quantity supplied. Therefore, in the labor market, the equilibrium wage is the wage such that there are exactly as many worker firms that are willing to hire as the number of workers who are willing to work at the wage.

Let Ld = D(w) be the demand function, and Ls = S(w) be the supply function. In equilibrium, the wage will adjust such that the quantity of labor demanded is equal to the quantity of labor supplied, i.e.,

• Ld = Ls
• D(w) = S(w)

The above equation will determine the equilibrium wage.