Just like any other market
, but a bit more interesting because it involves volatile human beings.
Just like any other market. What does that mean? That means it basically obeys the rules of supply and demand. If a lot of people are providing ("selling") a particular skill, then people won't buy (employ) at such a high price. Unskilled or semi-skilled labour is an example of this - there are plenty of people who can sit in a factory and pack things into boxes, which is why you're not likely to get much above the minimum wage for it.
On the other hand, highly-skilled positions (lawyer, doctor, programmer) get paid a lot because they're hard to find, or provide very specialised skills.
The demand for this labour ultimately comes from the customer - s/he demands a product, so a company demands labour to make the product or provide the service.