Unemployment Dynamics and Market Competition Models

Understanding the Unemployment Rate

The unemployment rate is the percentage of the economically active population that is unemployed. Two institutions measure this: The Labour Force Survey (LFS), conducted quarterly by the INE among the population aged 16 or over who are available to work but cannot find it, and registered unemployment, which is measured monthly by the INEM. They differ because the registered unemployment figures are typically lower.

Government Actions to Combat Unemployment

Steps the government can take include actions on labor supply, affecting the number of assets or labor market flexibility. This involves reducing the workforce through early retirement to enable older people to leave their jobs for others, extending compulsory education, and delaying the working age. Other measures include working fewer hours so more people can work, eliminating overtime, and increasing part-time or temporary work.

Regarding the demand for work, governments may use:

• Public investment to create new jobs.
• Assistance for the creation and development of small and medium-sized businesses (SMEs).
• Tax cuts and other incentives for businesses.

Four Main Types of Unemployment

• Frictional or transitional unemployment: Occurs when people change jobs and are temporarily unemployed or when seeking a first job after graduation. This does not pose a major social problem.
• Seasonal unemployment: Generated at certain times of the year.
• Cyclical unemployment: Produced during economic crises when production decreases and, therefore, people lose their jobs.
• Structural unemployment: Caused by imbalances in the skills between jobs offered and those sought.

Market Structures: Monopoly vs. Perfect Competition

The Impact of Monopolies

In a monopoly, the consumer cannot choose the product because there is only one company offering it, and prices are more expensive than in perfect competition. Companies want to be monopolies to escape perfect competition, gain pricing power over others, and thus achieve better control.

Characteristics of a Perfectly Competitive Market

In a perfectly competitive market, there are few barriers to entry and exit. There are many small producers who make up an insignificant portion of the total market. The goods exchanged in this market are homogeneous products; there is no difference between a product sold by one company and those sold by others. There is full information, as all producers and consumers know the product features and price. The producer has no power to set the price at which they sell their product, so they must accept the market price, which is the same for all competitors.