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Low Unemployment (Edexcel IGCSE Economics)

Revision Note

Steve Vorster

Written by: Steve Vorster

Reviewed by: Jenna Quinn

An Introduction to Unemployment

  • Employment refers to the economic use of labour as a factor of production

  • Unemployment occurs when a person is not working but actively seeking work

  • A country's population is divided into the labour force and non-labour force

    • The labour force consists of all workers actively working plus the unemployed (who are seeking work)

    • The non-labour force includes all those not seeking work, e.g. stay-at-home parents, pensioners, and school children (these people are economically inactive)

Measuring Unemployment

  • Unemployment is measured in many countries using the International Labour Organisation (ILO) Survey

    • An extensive survey is sent to a random sample of households every quarter (60,000 households in the UK)

    • Respondents self-determine if they are unemployed based on the following ILO criteria:

      • Ready to work within the next two weeks

      • Have actively looked for work in the past month

  • The same survey is used globally so the results are useful for making international comparisons

Calculating the Unemployment Rate

  • Three metrics are commonly used when analysing the labour market in an economy

    • The unemployment rate

    • The employment rate

    • The labour force participation rate

Unemployment rate

Employment rate

Labour force participation rate

equals fraction numerator no. space actively space seeking over denominator total space labour space force end fraction space straight x space 100

equals fraction numerator no. space in space employment over denominator population space of space working space age end fraction space straight x space 100

equals fraction numerator labour space force over denominator total space population end fraction space straight x space 100

  • The employment rate could be increasing even as the unemployment rate is increasing:

    • It may be caused by increased immigration, which causes working age population to increase

    • This may be caused as people move from being economically inactive to employed

  • Unemployment rates do not capture the hidden unemployment that occurs in the long term

    • Workers look for a job but may eventually give up and become economically inactive

    • This actually improves the unemployment rate, as fewer people are actively seeking work

Worked Example

The table provides information about a country's labour market

Population size

4000000

Labour force size

2400000

Number employed

1800000

Number of full-time students

200000

What is the unemployment rate of this country?

a) 15%

b) 25%

c) 50%

d) 75%

Step 1: Decide which information in the table is useful

  • The number of full time students would not be included in the labour force size, so it is not useful (it is a distraction)

  • The key information is the size of the labour force and the number employed

Step 2: Calculate the number of unemployed in the labour force

  • Labour force - employed = unemployed

  • 2,400,000 - 1,800,000 = 600,000 unemployed

Step 3: Calculate the unemployment rate

   equals fraction numerator no. space actively space seeking over denominator total space labour space force end fraction space straight x space 100 equals space fraction numerator 600 comma 000 over denominator 2 comma 400 comma 000 end fraction space straight x space 100 equals space 25 percent sign

Types of Unemployment

  • It is possible to classify unemployment into different categories

Types of Unemployment

Type of Unemployment

Explanation

Cyclical

  • This is caused by a fall of total (aggregate) demand in the economy

  • It often happens during a downturn or recession in the economic (business) cycle when real gross domestic product (rGDP) is falling

  • The demand for labour is derived from the demand for goods and services. As output falls in the economy, firms lay off workers

Structural

  • It occurs when there is a mismatch between jobs and skills in the economy

  • It usually happens as the structure of an economy changes, e.g. the secondary sector is declining and the tertiary sector is growing

  • There is no longer a need for a specific type of worker, e.g. ship builders in Glasgow

  • Many Western industries have relocated production to China, causing structural unemployment in their economies

  • Unless workers receive help to retrain, they are often left unemployed or underemployed

Seasonal

  • Seasonal unemployment occurs as certain seasons come to an end and labour is not required until the next season

  • E.g Fruit pickers; summer seaside resort workers; ski instructors

Voluntary

  • Occurs when workers choose to be unemployed

  • E.g They may be waiting to find a job with higher wages or are qualified for

Frictional

  • Occurs when workers are between jobs

  • This is usually short-term unemployment

  • Workers have voluntarily left their previous job to search for another

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    Author
    Reviewer
    Steve Vorster

    Author: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.

    Jenna Quinn

    Author: Jenna Quinn

    Expertise: Head of New Subjects

    Jenna studied at Cardiff University before training to become a science teacher at the University of Bath specialising in Biology (although she loves teaching all three sciences at GCSE level!). Teaching is her passion, and with 10 years experience teaching across a wide range of specifications – from GCSE and A Level Biology in the UK to IGCSE and IB Biology internationally – she knows what is required to pass those Biology exams.