Labor Market Economics: Supply, Demand and Unemployment

Labor Supply and Demand Dynamics

Offer of work (Labor Supply): The work quantity q is provided by the active population (the older population). This represents the number of hours n each person is willing to work for a specific salary. They offer work in exchange for a salary and leave work behind in favor of leisure.

Labor Demand: Companies need workers to develop their activity. This depends on the workers' salary and productivity. If businesses increase wages, they will reduce the demand as it becomes more expensive to hire. The salary equilibrium point is where the curves cross; it is the salary amount where the number of people willing to work matches the amount entrepreneurs are willing to hire.

Labor Market Imperfections

• Unions and Companies: These affect wages through collective negotiations. The state also influences the market through labor law legislation.
• Heterogeneity: Labor is not homogeneous; neither jobs nor workers are equal.
• Compensation Differences: Salaries for night shifts or dangerous jobs tend to be higher.
• Differences in Talent and Skills: Highly valued by society, elite athletes and movie stars bring something special to their work.
• Difference in Human Capital: A more prepared and experienced person (such as an engineer) contributes more to production and tends to have higher wages.
• Efficiency Wages: These are incentives that some companies utilize to keep workers motivated and increase productivity.
• Discrimination: Based on educational levels or gender, where men may earn higher salaries.

The Unemployment Problem and Its Measurement

Unemployment refers to the unemployed persons who are in a condition to work and are active job seekers but cannot find a position.

Measuring Unemployment

• EPA Survey (Active Population Survey): Conducted by the National Institute, these quarterly statistics track the population aged 16 or more who are available for and seeking work. It considers anyone 16+ who is unemployed and wants to work.
• Registered Unemployment: Conducted by the National Employment Institute. It only takes into account those unemployed individuals registered in their offices; these numbers are usually lower than the EPA figures.

Theoretical Causes of Unemployment

• Neoclassical Theory: If the labor market operated freely and wages were flexible (up or down), unemployment would not exist. If there were a serious oversupply of workers, wages would lower, allowing companies to hire more, thus preventing unemployment. In reality, wage rigidity prevents the adjustment of supply and demand, for which unions and the government are often blamed. Another cause is the minimum wage set by the state to guarantee a living standard.
• Keynesian Theory: The principal cause lies in the market for goods and services. Increased demand for goods leads to higher production and high employment. However, when the demand level decreases, business activity falls and creates unemployment.
• Mismatch Between Supply and Demand: Companies look for specific skills and do not find them. Thus, there is an oversupply in some areas and shortages in other professions.
• Mal-distribution of Employment: There are people with multiple jobs (pluriempleo) who work extremely long hours, preventing others from accessing the labor market.