The purpose of this paper is to provide theoretical analysis of the labor market, wage setting, and labor allocation. To be able to do that, it is first necessary to give a definition of the labor market, wages and labor allocations. The labor market is the place where supply and demand for jobs meet, and the labor force provides the services that employers demand. Salary is a form of occasional payments by an employer to an employee. Labor allocation or division of labor is the process of efficiently organizing resources and manpower to achieve a company’s goals. The allocation is based on how the enterprise will benefit from the appropriate allocation of resources and roles. Through this paper, the functioning of the labor market will be observed along with labor supply and demand. The minimum wage and labor productivity will be defined, and the determination of wages and the distribution of labor in different market structures will be analyzed. Finally, the previously analyzed will be applied in the empirical part on the example of the Republic of Croatia. The labor market refers to supply and demand for labor, in which employees represent supply and employers demand. In the labor market, workers are assumed to move where there is a need for their skills. Wages are not fixed, which means they range depending on the performance of workers. Differences in wages are directly related to the diversity of occupations and activities that exist in the economic sphere of activity in a country. Salaries or wages are determined in several ways. The three most common ways are: collective bargaining, individual bargaining and take it or leave it. The minimum wage is the legally prescribed lowest price per hour below which a worker may not be offered a job. Trade unions try to influence wages primarily by regulating or influencing labor supply. Trade unions exert their influence on higher wages and benefits through collective bargaining. In this paper, the topic will be explained in more detail on the example of the Republic of Croatia. The minimum wage over the years will be analyzed, as well as the determination, number and structure of employees by sectors.