Exercises: The labour market and unemployment

Define the economically active population (labor force) and inactive population, and classify: an employed nurse, a high school 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-checkout machines, a recent graduate who takes months to find their first job, and a factory worker laid off 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.

Define, according to the Current Population Survey (CPS), who counts as employed, who as unemployed and who as not in the labor force. Give a specific example of each among people you know (real or fictitious) and justify the classification.

What is the labor force participation rate (the labor force divided by 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).

Distinguish between a permanent contract and a temporary contract. Explain what advantages and disadvantages each one has for the worker and for the company, and why young people so often end up in temporary jobs.

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

What is the federal minimum wage, who sets it in the United States and what is it for? Explain in your own words why there is a wage floor even though the market could pay some workers less.

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 benefits, youth hiring subsidies, and income support. What is the objective of each set of measures?

In a country there are $20$ million people aged $16$ or over, of whom $12$ million are in the labor force and $2$ million are unemployed.

1. a) Calculate the labor force participation rate and the unemployment rate.
2. b) Calculate the number of employed people and explain the relationship between the labor force, the employed, and the unemployed.

A region's unemployment rate falls from $14\ \%$ to $13\ \%$, but that same year $100,000$ people have left the labor force (they stopped looking for work).

1. a) Explain how unemployment can fall without any jobs being created.
2. b) What data would you look at, besides the unemployment rate, to know whether the labor market is really improving (employed, labor force, Social Security registration)? Justify each one.

A person takes three months to find their first job after graduating, even though there are job openings in their sector.

1. a) What type of unemployment are they experiencing and why is it considered almost "physiological" (normal in any economy)?
2. b) Explain why a little of this unemployment can even be a sign of a healthy market (searching for a good match) and what policies reduce it (job opening information, job portals, career counseling).

A mining basin closes its last mines: thousands of $50$-year-old workers with highly specialized 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 experience 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 businesses, relocation assistance).

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)?

In a coastal city with $12,000$ inhabitants, the unemployment rate rises from $4.5\ \%$ in August to $24.8\ \%$ in January. The City Council member 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 subsidize tourism businesses so that they do not close in winter."

1. a) Economically refute the council member's statement by identifying the type of unemployment and analyzing 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? Explain why this debate is empirical and not just theoretical.

In a fictitious labor market, the equilibrium wage would be $\$6$ an hour. A minimum wage of $\$8$ 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 labor 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?