Low Unemployment (Edexcel IGCSE Economics)

Revision Note

Written by: Steve Vorster

Reviewed by: Jenna Quinn

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)

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

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
$= \frac{no . actively seeking}{total labour force} x 100$	$= \frac{no . in employment}{population of working age} x 100$	$= \frac{labour force}{total population} x 100$

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

The table provides information about a country's labour market

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

Step 3: Calculate the unemployment rate

$= \frac{no . actively seeking}{total labour force} x 100 = \frac{600, 000}{2, 400, 000} x 100 = 25 %$

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

Last updated: 12 June 2024

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