Unemployment — what it is, types and consequences

Classify these people into the economically active population (working or looking for work) or inactive population (neither working nor looking for work), and within the active population, into employed or unemployed: (a) an employed nurse; (b) a 4th ESO student not seeking work; (c) an unemployed waiter sending out CVs; (d) a retired woman; (e) a father caring for his children who is not seeking employment; (f) a self-employed plumber. Then define economically active population and unemployment rate in your own words.

According to the Labour Force Survey, not working is not enough to count as unemployed: you must be without a job, have looked for work in recent weeks and be available to start.

1. a) Say whether they count as unemployed: a mother caring for her children who is not looking for a job; a young man sending out CVs every week; a student looking for her first job.
2. b) Explain why the definition is so strict (to measure who is really looking and able to work).

The figure shows the unemployment rate in Vega del Río over three years, but the figure for the final year is covered. There are $2.000$ people in the town's active population; in Year $1$ there were $200$ unemployed people, in Year $2$, $300$, and in Year $3$, $400$.

1. a) Calculate the three unemployment rates and state what value the covered bar should have.
2. b) Explain in your own words what that rate means and give a possible cause for unemployment rising (the closure of a business, a poor tourist season).

In Villanueva there are $20.000$ people of working age: $12.000$ have a job, $3.000$ are looking for work, and $5.000$ are not looking for work (studying, retired, or caring for the home).

1. a) Calculate the active population and the unemployment rate.
2. b) If $750$ unemployed people find a job, calculate the new unemployment rate.
3. c) Explain why, to calculate the rate, we divide by the active population rather than the total population.

In the town of Rioclaro, the active population is $16.000$ people: $12.000$ employed and $4.000$ unemployed.

1. a) Calculate the unemployment rate.
2. b) One thousand unemployed people give up looking for work and stop being counted as active: calculate the new active population, the new number of unemployed people, and the new rate.
3. c) Explain the paradox: the unemployment rate has fallen without anyone actually finding a job. What does this teach us about how to interpret unemployment news?

Match each case to its type of unemployment — frictional (search), seasonal, structural, or cyclical — and justify one of them: (a) beach lifeguards, unemployed every winter; (b) a checkout assistant replaced by self-service machines who lacks the training required by new job openings; (c) a recent graduate who takes four months to find her first job; (d) construction workers made redundant when a general crisis hits.

Unemployment does not hit evenly across sectors and economic circumstances:

• Hospitality and tourism, where activity is concentrated in the summer and drops during the low season.

• Construction, where hiring drops drastically during phases of crisis or economic recession.

• Mechanised agriculture, where the introduction of new machinery permanently eliminates traditional jobs.

1. a) Match each of these three cases with its dominant type of unemployment (seasonal unemployment, cyclical unemployment, or structural unemployment) and briefly justify your choice.
2. b) Explain why precisely knowing the existing type of unemployment helps the authorities choose the most appropriate remedy or employment policy.

A coastal municipality with an active population of $8.000$ people lives almost exclusively off summer tourism. Official records show $400$ unemployed people in July and $2.000$ in February.

1. a) Calculate the unemployment rate for July and for February (use a decimal comma in your calculations). Classify the type of unemployment and explain the economic mechanism that causes this fluctuation.
2. b) Using the circular flow of income model, explain how the arrival of winter and the end of tourism contracts affect businesses in the town that are not dedicated to hospitality (hardware stores, academies, local supermarkets).
3. c) The town council is debating two projects to mitigate this problem:

• Project 1: Subsidising hotels so that they offer winter packages aimed at conferences and senior tourism.

• Project 2: Financing an incubator for digital businesses and training in complementary technical trades so that seasonal workers can be employed in winter.

Evaluate the costs, implementation difficulty, and long-term sustainability of both alternatives, and deliver a reasoned verdict.

When you lose your job after having contributed, you are entitled to unemployment benefit ('the dole'), which runs out over time; if it ends and you are still out of work, a smaller allowance may remain.

1. a) Explain the difference between the benefit and the allowance.
2. b) Argue why the benefit is calculated according to what you contributed (it is an insurance: you pay while you work, you receive if you lose it).

The public employment service (the 'job centre') doesn't just pay benefits. Name and explain three more things it does: registering those looking for work as jobseekers, offering training courses, connecting companies' job offers with workers, and giving guidance on what to study or where there is work. Say which one you would use in a year's time to look for your first summer job.

A permanent contract has no end date; a temporary one does (for a specific job, for a season, to cover someone's leave).

1. a) Explain the difference and give an example of a job where the temporary one makes sense (the grape harvest, a shop's Christmas reinforcement).
2. b) Argue what problem there is if someone chains temporary contracts for years (precariousness: they can't plan their life or apply for a mortgage).

Write down two consequences of unemployment for the individual suffering it (economic and personal or health-related) and two for the economy as a whole (lower consumption; the State collects less and spends more on benefits). Expand on one of them using a specific example, real or imagined.

In an economy with an unemployment rate of $14\,\%$, $45\,\%$ of unemployed individuals have been trying to find a job for more than a year, placing them in long-term unemployment.

1. a) In labour economics, the process by which prolonged unemployment becomes chronic is known as "hysteresis". Explain how the loss of human capital, psychological discouragement, and the warning signal that employers perceive when faced with a CV with long gaps interact to create this trap.
2. b) Design a comprehensive reintegration programme that combines one measure addressing labour supply (the unemployed) and another addressing labour demand (the hiring companies). Justify how each measure tackles one of the causes of the vicious cycle analysed in the previous section.
3. c) If a government decides to respond to the problem by turning the unemployment benefit into indefinite welfare assistance without linking it to training pathways or active job searches, predict what effects this measure might have on the activity rate and the risk of generating a "poverty trap".

The Ministry of Labour in a country with an unemployment rate of $18\,\%$ has a limited extraordinary budget and is debating how to allocate it among three proposals:

• Proposal A: Subsidising for one year the hiring of individuals under $25$ years old without prior work experience.

• Proposal B: Intensive technical retraining courses for workers laid off from mining and heavy industry, redirecting them towards renewable energy installation.

• Proposal C: A massive investment plan in infrastructure and public works to revive activity during a severe recession.

1. a) Classify which type of unemployment (frictional, seasonal, cyclical, or structural) each of the three proposals attempts to correct and justify your answer in each case.
2. b) Predict which of the measures will have a greater lasting impact on the long-term competitiveness of the economy and which offers only temporary relief. What risk of a "substitution effect" or dependence on public aid could arise in Proposal A if strict conditions are not set?
3. c) If the economy suffers a drastic and immediate drop in household consumption and business investment, which of the three measures will act most quickly as a stabiliser of aggregate demand? Justify your reasoning.