This chapter covers the labor market model. Professor Larraín begins with a real-world case, examining why the unemployment rate is so much higher in the Euro area than in the US; much of this difference depends on the differences between labor market institutions, ease of hiring, etc. This chapter focuses on the labour market, concepts, definitions, and how to study population groups and countries, as well as the unemployment rate. It explains who is an unemployed individual and who makes up the labor force, the unemployment rate, the vacant rate, and the separation rate. The Beveridge curve is a relationship between the vacancy rate and the unemployment rate, and is used in this explanation. There is a discussion of how labor markets group different groups in the population, significantly men and women.

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