Understanding Labor Markets and Economic Dynamics
Characteristics of the Population
The main reference of any labor market is the population from which it draws. The population is the number of people who live in a particular geographical area, but not the entire population equally participates in productive processes. Depending on their degree of participation in the productive process, the population can be categorized as:
- Working-age population: includes the employed and the unemployed.
- Inactive population: only consumes.
Once grouped, population statistics become an essential tool for employment. They are joint social protection measures. The government bodies involved are the INE and the INEM.
Employment Statistics
Key sources of employment statistics include:
- Survey of the Working Population (EPA): a survey conducted each quarter.
- Survey of Labor Situation: conducted by the Ministry of Labor and Social Affairs.
- Affiliation figures to Social Security: data provided by the INEM.
Types of Unemployment
Unemployment can be classified based on its causes:
- Cyclical or short-lived: This type greatly increases during times of recession, while it decreases significantly during stages of economic expansion. The public sector seeks to smooth the transition between various economic cycles so that the labor supply remains unchanged.
- Seasonal: Due to certain activities that require labor only at specific times of the year.
- Structural: Responds to imbalances between labor supply (employees) and demand (employers). This unemployment tends to last longer.
- Frictional: Voluntary unemployment for various reasons (e.g., changing jobs).
Trade Unions
Trade unions are associations designed to defend the rights of employees against the power of employers. Their strategies include:
- Limiting the supply of work and establishing a minimum wage.
- Collective bargaining: A process aimed at finding an agreement that satisfies both parties (employees and employers).
- Strike: A workers’ right to impose certain conditions or to express a protest.
- Employer lockout: Closure by the employer justified by the existence of a threat of violence against persons or property damage.
Market Failures
A market failure is a negative consequence of market performance and occurs when the market is not efficient in allocating available resources. The major flaws are:
- Volatility of economic cycles.
- Existence of public goods.
- Externalities.
- Imperfect competition.
- Unequal income distribution.
Instability of Economic Cycles
The economy ultimately adopts a cyclical behavior. Expansive and recessionary cycles are fluctuations in economic activity, alternating between phases of expansion and recession. Cyclical instability is the most important of market failures because it directly affects the number and characteristics of jobs in a country. In recessions, the public sector can adopt one of two positions:
- No action: By trusting that the market will exit the crisis by itself and re-expand economic activity.
- Intervene: By consuming and producing goods and services. Through this type of intervention, the state artificially boosts economic activity levels and compensates for the lack of demand.
Public Sector Intervention: Economic Policy
Economic policy is the set of measures and instruments utilized by the State to intervene in economic activity and try to foster the economic progress of the country.