This paper presents a survey of recent microeconometric studies of
the labor market, focusing on research that emphasizes the possible
failure of measured wage rates to separate individual supply and demand
decisions. On both the demand and supply sides of the labor market
there is evidence that forces from the other side of the market
influence employment outcomes through some mechanism other than the
wage. On the supply side, this evidence takes the form of correlations
between individual labor supply outcomes and market—level measures of
employment demand in the individual's local labor market. On the demand
side, it takes the form of correlations between firms’ employment decisions and measures of their employees‘ outside opportunities. Both sets
of findings are inconsistent with simple supply and demand models, and
suggest the need for alternative models of the labor market, which
permit an uncoupling of short-run employment decisions from wage rates.