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CIE IGCSE Economics Your notes
4.7 Employment & Unemployment
Contents
4.7.1 Understanding Employment
4.7.2 Measurement of Unemployment
4.7.3 Types of Unemployment
4.7.4 Consequences of Unemployment
4.7.5 Policies to Reduce Unemployment
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4.7.1 Understanding Employment
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Employment Terminology
Key terms to understand are employment, labour force, unemployment, & full employment
1. Employment: refers to the economic use of labour as a factor of production
2. Unemployment: Someone is considered to be unemployed if they are not working but actively
seeking work
3. Labour force: A country's population is divided into the labour force - & 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,
school children (these people are economically inactive)
4. Full employment: describes the ideal situation when everyone in the economy who is willing & able to
work has a job
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Changing Employment Patterns
Many economies are experiencing changing patterns of employment within their workforce & there are Your notes
numerous reasons for this
Causes of Changing Employment Patterns
Structure of the Economy Proportion of Women Employed Formal & Informal Work
As Economies develop over Changing social attitudes Workers doing informal work
time, they tend to progress have increased the number of are not included in
through the different sectors women entering the employment statistics
(primary, secondary & tertiary) workforce Informal employment is much
resulting in changes to the The proportion of women in higher in less developed
employment pattern the workforce still varies economies & tends to
E.g. More manufacturing jobs significantly between decrease as an economy
in the secondary sector different economies e.g. develops
attract workers who had Sweden has a much higher
previously worked in the proportion of women in the
primary sector workforce than India or Saudi
Arabia
Proportion of Workers in the
Part-time & full-time Work from home
Public & Private Sector
Between the Second World Working part-time provides Covid 19 caused many people
War & the late 1980's, the more flexibility to workers & in to think about their pattern of
number of public sector recent years, there has been work. Many workers are
employees was large in many an increase in the number of reluctant to return to a
economies part-time workers commuting lifestyle &
With an increase in In some economies workers wherever possible, are
privatisation & a move may not be able to find full- continuing to work from
towards more market based time work & may be working 2 home
economies, the percentage of or 3 part-time jobs to pay the
employees in public sector bills
work has decreased in many
countries
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4.7.2 Measurement of Unemployment
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The Claimant Count & Labour Force Survey
Unemployment is often measured using two different approaches
The International Labour Organisation (ILO) Survey
The Claimant Count
The Differences Between the ILO Labour Force Survey & The Claimant Count
The ILO Labour Force Survey The Claimant Count
An extensive survey is sent to a random sample Counts the number of people claiming
of ≈ 60,000 households every quarter unemployment benefits
Respondents self-determine if they are More stringent requirement to be considered
unemployed based on the ILO criteria unemployed than with the ILO survey
Ready to work within the next two weeks Requires claimants to meet certain criteria &
Have actively looked for work in the past excludes many e.g.
one month Those with savings
The same survey is used globally so it's useful for People who claim pensions
making international comparisons Married women who are looking for a job
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Calculating the Unemployment Rate
Three Metrics Are Commonly Used When Analysing the Labour Market in an Economy Your notes
Unemployment rate Employment rate Labor force participation rate
no . actively seeking no . in employment labour force
= x 100 = population of working age x 100 = x 100
total labour force total population
The employment rate could be increasing even as the unemployment rate is increasing:
May be caused by increased immigration which causes working age population to increase
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
200000
students
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
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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 infromation is the labour force size & the number employed Your notes
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
no . actively seeking
= x 100
total labour force
600 ,000
= x 100
2,400 ,000
= 25 %
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4.7.3 Types of Unemployment
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Types of Unemployment
It is possible to classify the causes of unemployment into three categories
1. Structural unemployment 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
2. Cyclical unemployment is caused by a fall of total (aggregate) demand in an economy
This typically happens during a slow down or recession
At least one of the components of real gross domestic product (rGDP) is falling (consumption,
investment, government spending or net exports)
The demand for labour is a demand derived from the demand for goods/services
As output falls in the economy, firms lay off workers
3. Frictional unemployment 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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4.7.4 Consequences of Unemployment
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Consequences of Unemployment
The effects of unemployment, especially long-term unemployment, are extremely damaging
There are impacts on the individual, the economy, the government, and firms
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Long term unemployment affects individuals, the economy, government, and firms
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Government's receive less tax revenue & have higher expenditure in the form of welfare payments
Individuals suffer significant emotional, relational & financial consequences
Firms may find it harder to find workers to employ (as they have moved on) once the economy starts to
recover
The economy contracts as there is a higher level of inefficient use of available resources
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4.7.5 Policies to Reduce Unemployment
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Demand-side Policies
Expansionary fiscal policy & expansionary monetary policy aim to increase total (aggregate) demand
in an economy
The demand for labour is derived from the demand for goods/services
If total demand for goods/service increases there will be a higher demand for labour leading to
lower unemployment
Total demand can be increased through any policy which increases one of the components of real
gross domestic product (rGDP)
Examples of Demand-side Policies Which Are Likely To Reduce Unemployment
Broad Policy Type Specific Policy Explanation
Expansionary Fiscal Government decreases Firms pay less tax → firms have more profit → firms
Policy corporation tax hire more workers → firms increase output →
unemployment falls
Expansionary Fiscal Government increases Defence firms receive more orders from the
Policy expenditure on national government → they hire more workers to produce
defence the output → unemployment falls
Expansionary Fiscal Government decreases Households have more discretionary income →
Policy personal income tax consumption increases → in order to produce the
extra goods/services, firms hire more workers →
unemployment falls
Expansionary Monetary The Central Bank lowers Household repayments on existing loans fall →
Policy interest rates Households have more discretionary income →
consumption increases → in order to produce the
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extra goods/services, firms hire more workers →
unemployment falls
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Expansionary Monetary The Central Bank Many firms receive money as the Central Bank buys
Policy increases the money back their bonds → they decide to use the extra
supply through money to invest in new equipment & technology →
quantitative easing investment increases allowing the production of the
more goods/services → firms hire more workers →
unemployment falls
Demand-side policies are very effective at dealing with unemployment caused by a fall in total
(aggregate) demand
They are not effective at dealing with frictional & structural unemployment
One conflict caused by expansionary policy is that demand pull inflation is likely to occur
Expansionary monetary policy tends to increase inequality in the distribution of income as the poor are
usually unable to benefit from it (banks do not necessarily lend to the poorest households)
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Supply-side Policies
Supply-side policies aim to improve the quantity/quality of the factors of production thereby raising Your notes
potential output
If output increases then firms will require more workers to produce that output & unemployment
may fall
Examples of Supply-side Policies Which Are Likely To Reduce Unemployment
Specific Supply-side Policy Explanation
The Government reduces trade Trade union power weakens → firms lower wages → costs of
union power production decrease → firms can produce more output with the same
input → firms hire more workers as they are cheaper → unemployment
falls
The Government reduces Regulations removed → costs of production decrease as firms no
regulation on the oil & banking longer need to spend money meeting requirements → firms can
industries produce more output with the same input → firms hire more workers as
they are cheaper → unemployment falls
The Government introduces new Cheaper to study green technology → more students develop their
long term training subsidies for skills → supply of skilled workers in the industry grows → new firms
students of green technology launch → output increases & more workers are required →
unemployment falls
Supply-side policy tends to be long term e.g. breaking trade union power is a long term process, as is
training
It is most effective in dealing with unemployment caused by frictional & structural unemployment
It does not help deal with unemployment caused by demand side issues e.g. a recession
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Protectionist Policies
Protectionism involves the use of government policies that restrict international trade in order to Your notes
protect domestic industries, including employment in domestic industries
Some firms are unable to compete with international firms & without protection, go out of business
Their workers become unemployed
To avoid this, governments help domestic firms to survive by subsidising them, or placing import
tariffs on a range of products which raises the price of the goods/services provided by foreign
competitors
Protectionist policies may well protect employment of some workers in the industry targeted, but
create even higher unemployment in related industries
E.g. in 2016, The Trump Administration placed tariffs on all steel imports which protected around
1,600 jobs in the steel industry. However, the raised price of imported steel, which is used as a
factor of production in many industries, reduced output & increased unemployment in many
related industries
A deeper evaluation of protectionism is available in Sub-topic 6.3.2
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