Low Unemployment (Edexcel IGCSE Economics)

An Introduction to Unemployment

Spec point — 1.2.6d

• 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

Spec point — 2.1.1c

• 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

Spec point — 2.1.1c

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

  • The unemployment rate
  • The employment rate
  • The labour force participation rate

• 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

$= \frac{no. \text{actively} seeking}{total \text{labour} force} \mathrm{x} 100

= \frac{600 , 000}{2 , 400 , 000} \mathrm{x} 100

= 25 %$

Types of Unemployment

Spec point — 2.1.1b

• It is possible to classify unemployment into different categories

Types of Unemployment