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Employment and Unemployment | O Level Economics 2281 & IGCSE Economics 0455 | Detailed Free Notes To Score An A Star (A*)

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  • Labor Force
    • Economy’s working population
    • All people of the age of working
    • Who are able and willing to work.
  • Dependent Population
    • Not in labor force
    • Depend on labor force for their requirements
    • People in education
    • Retired people
    • Prisoners
    • Mentally ill people
  • Employment
    • Engagement of a person in labor force.
  • Unemployment
    • Labor force members
    • Actively looking for jobs
    • Can’t find jobs
    • Low unemployment is a government macroeconomic aim
  • Full Employment
    • No one is unemployed from the labor force
    • 0% unemployment
  • How employment pattern changes
    • Business cycle changes in the economy
    • Demographic changes in the economic
    • Structural changes
    • Development of economy
      • Causes structural changes because shifts in industry types
      • As a result, people will get unemployed as they need to learn new skills for the changing industrial requirements
      • Employment can also move from informal to formal sector
      • Female labor can increase as a society progresses
      • Old people proportion may increase in the economy as well.
      • Private sector changes occur as well
  • How is unemployment measured
    • Claimant count
      • People who file to get unemployment benefits of the government
      • It can help measure the unemployed
      • Some people may be unemployed on purpose to live on these benefits
    • Labor surveys
      • Surveys are conducted on the entire labor force
      • Including the unemployed
  • Unemployment rate
    • Number of people unemployed/ total number of people in the labor force
  • Underemployment
    • A person is working but
      • Working less hours than he wants to
      • Or working in a low level work compared to his education level
    • Inactivity Rates
      • People employed in the long term
      • May leave the labor force
      • So they are economically inactive
      • It could lead to understatement of unemployment rates
  • Types of unemployment
    • Frictional unemployment
      • One job left by the worker to find a new job
      • This usually corrects in some time.
    • Cyclical unemployment
      • It occurs due to economic recession which reduces aggregate demand
      • Once demand falls, production lowers and workers are laid off.
      • A big issue.
    • Structural unemployment
      • Economic structure change
      • New skills required for workers
      • It can be corrected by better supply side policies
    • Technological unemployment
      • A rise in technology can make capital replace labor.
    • Seasonal unemployment
      • Some products and works have seasonal demand
      • For example, tour guides.
    • Voluntary unemployment
      • People don’t work on purpose
      • Higher education
      • Want a break
      • Are not part of the labor force as not looking for work actively
  • What unemployment does?
    • Working skills fall if unemployed for long.
    • Living standards fall
    • Poverty occurs
    • Crime rates may increase
    • Firms may want to retain workers so more costs in redundancy payments
    • Demotivation of workers
    • Average costs will increase as capacity utilization falls
    • PPP falls and demand falls
    • Government spending on unemployment benefits increases, so other things can’t be focused by the government
    • Public expenditure on other projects will reduce so opportunity cost of unemployment benefits is high
    • Economically efficient production is not possible
  • How can unemployment be reduced?
    • Demand side and supply side policies
    • Demand side policies reduce cyclical unemployment
    • Supply side policies reduce frictional and structural unemployment
    • Expansionary policies to increase demand, so more people hired to meet the increased demand
    • Depreciation of exchange rate so exports increase so more demand and then more hiring to meet it
    • Reduce inflation via monetary policy so costs reduce and employment increases
    • Unemployment benefits can be reduced so people will look for a job instead of living on the unemployment benefits
    • Imports reduced and export increased so foreign products aren’t there and local products have to be made.
    • Minimum wage is reduced so firms can afford more workers
    • Labor market regulations removed like minimum wage or working conditions or working weeks etc. so firms can afford more workers.
    • Training workers or retraining them to meet the new skills
    • Industries are created in unemployed areas or are supported by the government
    • Information provided to create awareness about the jobs available.
Hunain Zia

Hunain Zia has previously achieved considerable success in the high-school educational stream, gaining a massive 154 Total A Grades and 7 Major Distinctions, a process in which he broke/ set 11 different world records, including the most A grades ever achieved, most subjects ever appeared in, most distinctions, gaining distinctions across two separate boards (Pearson Edexcel and CAIE) within the same year/ ever, and even 19 hours of constant examination. All records stand intact today. Hunain pursued his Honors Accounting Degree from the prestigious Bentley University, and then completed an LLB (in Honors) from University of London. Currently, he manages multiple social and commercial projects, has founded digital streams and works tirelessly in the education sector.

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