The labour market and unemployment

The figure shows the labour market of an imaginary country: labour supply and demand, the equilibrium wage, and a minimum wage set above it.

1. a) Read the equilibrium wage and minimum wage from the graph.
2. b) Explain what imbalance occurs when setting the minimum wage above equilibrium.

In a fictitious labour market, the equilibrium wage would be $6\ \text{€}$ an hour. A minimum wage of $8\ \text{€}$ is set: at that level, firms demand $1$ million workers and $1,3$ million people want to work.

1. a) Quantify the imbalance and represent it with the labour market model.
2. b) Set out the arguments of defenders and critics of the minimum wage with these data, and reason what elasticities the real effect on employment depends on.
3. c) What empirical evidence would you ask for to settle the question?

The debate over the minimum wage: some argue that raising it destroys jobs; others maintain that it improves workers' lives and barely affects hiring.

1. a) Use the labour market model to represent the argument of those who oppose raising it.
2. b) What data would you request to find out which effect dominates in reality? Reason why this debate is empirical and not just theoretical.

Define, according to the Labour Force Survey (EPA), who counts as employed, who as unemployed and who as inactive. Give a specific example of each among people you know (real or fictitious) and justify the classification.

What is the activity rate (the active population over the population aged $16$ and over) and why does a country want it to rise? Explain what historical change made it grow so much in Spain in recent decades (the entry of women into paid work).

In a region, there are $20.000$ active people and $3.000$ unemployed people.

1. a) Calculate the unemployment rate and the number of employed people.
2. b) If $1.000$ unemployed people stop looking for work and become inactive, what happens to the unemployment rate? Recalculate and comment on the result.

Name the four types of unemployment and assign each case to its type: a waiter at a ski resort in summer, a cashier replaced by self-service checkouts, a recent graduate who takes months to find their first job, and a factory worker made redundant during a recession.

A bicycle factory closes because e-scooters take over the urban market.

1. a) What type of unemployment do its workers experience? Justify your answer.
2. b) Propose an appropriate corrective measure for that type of unemployment and explain how it would work.

A mining basin closes its last pits: thousands of $50$-year-old workers with highly specialised trades are left without work in an area with no other industries.

1. a) What type of unemployment is this and how does it differ from what a waiter would suffer at the end of the summer?
2. b) Explain why retraining courses are not enough if no companies come to the area, and what complementary measures would be needed (infrastructure, attracting firms, mobility aid).

Distinguish between a permanent contract and a temporary contract. Explain what advantages and disadvantages each one has for the worker and for the firm, and why young people get so many temporary contracts.

What is collective bargaining and who sits at the table (representatives of the workers and of the firms)? Explain what a collective agreement is and name two things it usually regulates (wages, working hours).

Despite the fact that $45\ \%$ of young Spaniards aged $25$ to $29$ hold a higher education degree (above the EU average), the youth unemployment rate doubles the European rate and coexists with business complaints of labour shortages in technical and service sectors.

1. a) Justify why high academic education and high youth unemployment coexist by analysing overqualification, skills mismatch, and contractual duality. Explain the economic mechanism connecting these factors with productivity and labour turnover.
2. b) A policymaker proposes granting a direct allowance of $400\ \text{€}$ per month to any unemployed person under $25$ years old. Predict the effects of this measure on the youth labour force participation rate and the reservation wage, and design an alternative measure based on incentives for training contracts or the school-to-work transition, justifying why it would be more efficient.

Distinguish between active and passive labour market policies and classify these measures: retraining courses for the unemployed, unemployment benefit, youth hiring subsidies, and income support. What is the objective of each set of measures?

A welding course for $200$ unemployed people places $60$ of them within six months.

1. a) Is it a success or a failure? Explain what comparison group you would use to find out (how many would have found work without the course?).
2. b) What other data would you ask for to evaluate the policy (quality and duration of the jobs, wages, cost per person placed)?

Two companies in the logistics sector address the seasonality of their orders in different ways: Company A resorts to very short-term temporary contracts that it terminates as soon as the workload decreases; Company B maintains a permanent workforce and responds to demand peaks with versatile cross-training, flexible working hours, and overtime. A labour reform drastically restricts temporary hiring and increases penalties for its unjustified use.

1. a) Predict the impact of this legal change on Company A regarding its labour productivity, its incentives to invest in human capital, and its average labour cost in the short and long term. Justify your answer by contrasting the incentives of the company and workers with those of Company B.
2. b) An analyst states: "The reform is an undeniable success because the temporary employment rate has dropped by $10$ percentage points in two years." Argue what other data and indicators (such as the average duration of contracts, the use of probationary periods, or total hours worked) you would request to verify whether real stability has been achieved or if precariousness has shifted toward arrangements such as permanent seasonal/discontinuous contracts (fijos discontinuos).