Employment & Unemployment (Years 8–11) — Economics

The main types of unemployment, their causes and effects, and how the unemployment rate is measured.

Unemployment happens when people who are able and willing to work, and are actively looking for a job, cannot find one. Keeping unemployment low is a key goal for governments.

Why this matters A job provides income, skills and dignity. When many people are out of work, families struggle, the government collects less tax and pays out more support, and the country produces less than it could.

Types of unemployment

Frictional — short-term unemployment while people move between jobs, such as a graduate searching for a first role.
Structural — caused by a lasting change in the economy, for example when a skill or industry is no longer needed and workers' skills no longer match the jobs available.
Cyclical — caused by a downturn or recession, when weak demand means firms need fewer workers.

Causes

Unemployment can rise when total demand in the economy falls, when technology or trade changes which industries are needed, or when workers lack the skills that employers want. Seasonal work, such as fruit picking, can also cause people to be out of work at certain times of the year.

Cyclical unemployment rises sharply in a downturn (red) and falls back as the economy recovers (green).

Effects

On individuals: lower income, loss of skills over time, and stress for the family.
On the government: less tax revenue and higher spending on benefits.
On the economy: output is lost because workers are idle, so the country produces below its potential.

How it is measured

The unemployment rate is the number of unemployed people as a percentage of the labour force (those working plus those seeking work).

Unemployment rate (%) = (number unemployed ÷ labour force) × 100

Note that people who are not looking for work, such as full-time students or retired people, are not counted as unemployed because they are not part of the labour force.

Common exam mistake: counting everyone without a job as unemployed. Full-time students, retired people and others not seeking work are outside the labour force and are not counted in the unemployment rate - only people actively seeking work and unable to find it count.

Exam technique: when a scenario describes a cause of job losses, name the SPECIFIC type first (frictional, structural or cyclical) before explaining it - examiners give a mark just for correct identification, separate from the explanation mark.

Put these steps in order to calculate the unemployment rate:

Identify the number of people unemployed
Identify the size of the labour force (employed plus unemployed)
Divide the unemployed by the labour force
Multiply by 100 to get the unemployment rate