Chapter 8 Employment and the labor market

working age

Min age required by law in each country
Spain:16.

Includes the active and inactive population

Working age population

1. active

2. inactive

Active working age population

indv. aged 16 or over who are Employed or Unemployed & actively looking for a job.

Labour force.

Inactive working age population

People of working age not working or not looking for work ej. students, stay @ home parents

NOT part of labor force

Main labor market indicators

Activity r8

Unemployment R8

Activity rate

% of active laborers in total population

eq: active people/total population

Unemployment R8

percentage of unemployed people in relation to the active population

Economically Active Population Survey: Spain

Eurostat: Europe: Europe

World Bank Database: Global level

statistics related to data on the labor force and its various categories: employed, unemployed,population outside the labor market (inactive).

Unemployment effects

Gov. Costs: Larger transfers (unemployment benefits, state aid) Higher public expenditures.

Less output/GDP: unsatisfied needs
Families in precarious situations

Social effects unemployment

Discouraged/active pop looking 4 work: stress/depre.

Discrimination: women and the young

Causes of Unemployment

1. Productivity and Competition

2. Labour Market Flexibility and Regulations

3. Demographics

4. Disparity Btw Edu/Job Market Needs

5. Underground Economy

Productivity and Competition factor unemployment

High productivity/technology → lower unemployment (more output=more demand 4 workers)

Competitive firms sell more → job creation.

Firms underpay workers → more sales → more jobs (ethical concern).

Labour Market Flexibility and Regulations factor unemployment

Strict hiring/firing rules→discourage firms from hiring.

Easier business setup/closure = more investment = more jobs.

Min Wage

Minimum wage

• High → better job quality but may reduce hiring.

• Low → may increase employment but reduce job quality.

Demographics factors unemployment

Population growth, migration, and women joining the workforce increase the active population.

If job creation doesn’t match, unemployment rises.

Disparity Btw Edu/Job Market Needs factor

people are trained in fields that aren’t in demand → unemployment

Underground Economy factor

These jobs aren’t counted → official unemployment appears higher

types of unemployment

Frictional

Structural

Seasonal

Cyclicall

Frictional unemployment

Normal job searching, moving between jobs, or first-time job seekers.

Seasonal unemployment

Occurs when jobs are only available at certain times of the year.

Predictable/regular

Structural unemployment

Long-term unemployment caused by fundamental changes in the economy.

Workers lack skills or Industries relocate/disappear

Cyclical unemployment

slowdown in the economy (recession)

less demand for goods and services, companies cut jobs

Underemployed worker:

someone who works part time, but would like to work full time

Discouraged worker:

someone who wants a job, but is no longer looking

Demand policies unemployment

Aim 2 inc spending 2 create
employment
Expansionary fiscal policies
Expansionary monetary policies

Supply policies unemployment

Aim 2 inc productivity in order 2 create employment

Research, development and innovation
Education
Infrastructures

Other unemployment policies

Labor market flexibility
Wage flexibility
Eliminating fraud (underground economy)

Demand unemployment policies

positive effects on employment in short term @ cost of putting inflationary pressure on the economy

Expansionary fiscal policies:

-Higher public (government) expenditures
-Lower taxes
-Higher transfers
Drawback: higher inflation and greater fiscal deficits.

Expansionary monetary policies

inc money circulating within an economy:
-Lower ECB’s interest rates
-Purchasing gov. debt from investors (open market operations)
-Lowering bank reserve req. ratio
Drawback: higher inflation

Supply policies

shift in supply curve 2 right through productivity improvements (edu. & innovation)

higher employment/GDP w(out) creating inflation.

Offshoring:

-Establishing business functions in another nation where resource is abundant & labor cheap.
-Reduces demand 4 national workers→inc. domestic unemployment

Creation of jobs: other types of employment

• Part-time employment: work less than a full-time worker w same job/occupation
• Temporary employment: fixed-term contract (specific date return of an employee) ej. seasonal employment

Labor Market Flexibility: Other Employment Measures

Reducing legal protections 4 employees→allows firms to hire/staff more easily.

Expanding temporary and part-time →allows firms to take on workers without long-term obligations.

Wage Flexibility: Other Employment Measures

-Removing minimum wage allows firms to offer lower wages→increase hiring

-Tying wages to worker or company performance→reduce layoffs