Exercises: The labour market and unemployment

Define the economically active population (labor force) and inactive population, and classify: an employed nurse, a Sixth Form student, a retiree, an unemployed person looking for work, and a person caring for their family without seeking paid employment.

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.

The figure shows the labor market of an imaginary country: labor 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 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.

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.

Distinguish between active and passive labor 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?

In a coastal municipality with $12,000$ inhabitants, the unemployment rate rises from $4.5\ \%$ in August to $24.8\ \%$ in January. The Councillor for Employment states: "To put an end to this problem, we do not need to spend money on training or retraining: it is enough for the city council to subsidise tourism businesses so that they do not close in winter."

1. a) Economically refute the councillor's statement by identifying the type of unemployment and analysing the viability, opportunity cost, and sustainability of keeping businesses open without sufficient demand.
2. b) Design an alternative medium-term contingency plan that combines seasonal adjustment measures with diversification into another productive activity. Justify which two labor market indicators you would use to assess whether your plan has been successful after four years.

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 labor 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.

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 labor 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 labor turnover.
2. b) A policymaker proposes granting a direct allowance of $\$400$ per month to any unemployed person under $25$ years old. Predict the effects of this measure on the youth labor 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.