Employment and Unemployment (Copy)

4.7 Employment and Unemployment

4.7.1 Definitions

• Employment: People of working age with jobs.
• Unemployment: People of working age, willing and able to work, but without jobs.
• Full employment: When everyone who wants a job at prevailing wages can find one (not 0% unemployment; some frictional unemployment always exists).

4.7.2 Changing Patterns and Level of Employment

• Structural shifts as economies develop:
  • More employment in tertiary sector (services).
  • Decline in primary sector (agriculture, mining).
  • Secondary sector (manufacturing) rises then falls with industrialisation.
• Social changes:
  • More women in workforce due to changing attitudes and equal rights.
  • Growth of part-time/flexible jobs.
• Public vs private sector:
  • Decline in public-sector jobs as economies shift to market-based systems.
• Informal to formal sector:
  • As economies grow, employment shifts from informal/unregistered jobs to formal/contract-based work.

4.7.3 Measurement of Unemployment

• Claimant Count: Number of people receiving unemployment benefits.
  • Advantage: Easy, quick.
  • Limitation: Excludes those unemployed but not claiming.
• Labour Force Survey (LFS): Sample survey asking people if they are seeking work.
  • Advantage: Wider coverage.
  • Limitation: Costly, may be inaccurate (sampling errors).
• Unemployment rate formula:

Unemployment rate=Number of unemployedLabour force×100text{Unemployment rate} = frac{text{Number of unemployed}}{text{Labour force}} × 100

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course

4.7.4 Causes/Types of Unemployment

• Frictional unemployment: Short-term, between jobs.
• Structural unemployment: Caused by long-term industry decline, mismatch of skills (e.g. coal mining decline).
• Cyclical (demand-deficient) unemployment: Due to lack of demand in recession.
• Seasonal unemployment: Jobs only available in certain times (e.g. tourism, farming).
• Technological unemployment: Replaced by machines/automation.

4.7.5 Consequences of Unemployment

For individuals:

• Lower income, falling living standards.
• Loss of skills/confidence.

For firms:

• Larger pool of labour → may lower wages.
• Lower demand for goods and services.

For economy/government:

• Higher welfare/benefit payments.
• Lower tax revenue.
• Waste of resources (inside PPC).
• Possible social problems (crime, unrest, inequality).

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course

4.7.6 Policies to Reduce Unemployment

Demand-side policies:

• Fiscal policy: Increase government spending, reduce taxes → boost demand.
• Monetary policy: Lower interest rates → encourage investment and spending.

Supply-side policies:

• Education and training → reduce structural unemployment.
• Labour market reforms → more flexibility, reduce wage rigidity.
• Lower income tax → encourage work.
• Subsidies for firms to hire workers.

Other measures:

• Promote entrepreneurship and self-employment.
• Regional development policies (support declining areas).

Effectiveness depends on type of unemployment:

• Frictional → better information.
• Structural → retraining.
• Cyclical → demand-side measures.

Quick Exam Links

• Recession → cyclical unemployment rises.
• Deindustrialisation (UK) → structural unemployment.
• Tourism/farming (seasonal) → unemployment fluctuates.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course