Labor market economics is about the effectiveness of the market in allocating people’s own time and abilities. The job of the labor market is matching supply and demand. In an ideal economy, supply of labor continuously rearranges itself to meet the demand for labor, moving from one set of skills to another and from one region to another to clear the global labor market. Demand for labor, too, may move across countries and across sectors to search for cheap and appropriate labor. This global process should be driven by prices, in that the price system brings supply where demand is abundant and, similarly, demand where supply is abundant. There may be situations, however, where the price system fails to deliver that outcome, at least in the short and medium run, and results in unemployment of labor and underutilization of capital. In this case institutional mechanisms may step in to make up for the failings of the market system, driving demand and supply towards each other. This is not an unimportant or easy task; what is at stake are the lives of individuals and firms. Policy makers and legislators, therefore, may need to intervene and devise the best institutional setting to prevent people from remaining unemployed and firms from remaining unstaffed. Quite clearly, the question hinges on the degree of confidence in the price system. The higher the confidence, the weaker the action required; the lower the confidence, the stronger the action required to compensate for the failings of that system.
In this chapter, we examine the nature and extent of this market failure in one segment of the Italian labor market, that of youth.
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