Economic Fundamentals: Market Failure, Trade Policy, and Global Integration

Unemployment: Causes, Types, and Measurement

Unemployment is detrimental for several reasons, impacting a country's potential, leading to less income, increased public spending, and a reduced quality of life.

Causes of Unemployment

• Characteristics of workers (skills mismatch).
• Insufficient demand for goods and services.
• Minimum salary levels (potentially pricing out low-skilled labor).

Types of Unemployment

• Frictional
• Seasonal
• Cyclical
• Structural (often replacing the repeated 'seasonal')

Key Labor Market Rates

• Activity Rate: Active population / Population over 16.
• Occupancy Rate: Employed population / Population over 16.
• Unemployment Rate: Unemployed population / Active population.

Strategies to Address Unemployment (Active Population Policies)

1. Targeting the Active Population: Public employment programs, reducing working time, and training initiatives.
2. Targeting Companies: Promoting recruitment, supporting self-employment, and fostering a flexible labor market.
3. Intermediation: Matching labor supply and demand.

The Role of the State and Market Failure

Market failure refers to the negative consequences resulting from the inefficient functioning of the market mechanism.

Examples of Market Failure

• Scarcity of public goods.
• Externalities (e.g., pollution).
• Lack of competition.
• Unequal distribution of income.
• Instability of the economic cycle.

Fiscal Policy

Fiscal policy involves decisions regarding how the government collects and spends money.

Main Fiscal Policies

• Tax variation (adjusting tax rates).
• Public goods programs.
• Employment plans and training.
• Transfer programs (social benefits).

Protectionism and Free Market Dynamics

Protectionism refers to government actions and policies that restrict or restrain international trade.

Arguments for Protectionism

• Less dependence on other countries.
• Job creation in the domestic country.
• Development of new industries.

Advantages of a Free Market

• Greater variety of goods sold.
• Increased competition.

Measures Used in Protectionism

• Taxes on imports (tariffs).
• Implementing limits on the amount of imports (quotas).
• Giving subsidies to domestic industries.
• Implementing non-tariff barriers.

Economic Integration and the European Union

Advantages of Belonging to the EU

• Tax-free trading among members.
• Stronger geopolitical position.
• Increased job opportunities and specialization.
• Common currency (for Eurozone members).
• Reduced conflict between nations.

Disadvantages of Belonging to the EU

• Takes away power from national governments.
• Increased inequality among regions.
• Interdependence (vulnerability to external shocks).
• Increased rivalry among member states.
• Limits relationships with other countries (due to common external policy).

Stages of Economic Integration

1. Free Trade Area: No taxes between members.
2. Customs Union: Includes a common external tax toward third countries.
3. Common Market: Includes free movement of people and money.
4. Economic and Monetary Union: Includes a common currency and unified economic policies.

Globalization and its Impact

Globalization is the process of creating a global market without geographical borders.

Reasons Behind Globalization

• Technology advancements.
• Funding opportunities.
• Economic liberalism (deregulation).
• Cultural exchange and generalization.

Negative Consequences of Globalization

• Greater power held by multinational corporations.
• Increased exposure of countries to global crises.
• Environmental problems.
• Greater inequalities between rich and poor countries.

Environmental Problems

Key environmental challenges include:

• Pollution and acid rain.
• Desertification.
• Biodiversity loss.
• Accumulation of waste.
• Climate change.

Challenges in Addressing Climate Change

It is difficult to agree on measures due to:

• The long-term nature of the problem.
• Relativity of cost-benefit analysis (immediate costs vs. future benefits).
• Unequal distribution of benefits and costs across nations.
• The necessity of international joint action.