Explain unemployment and how it is measured, the main types and causes of unemployment, and its effects on individuals, the government and the economy.

What this dot point is asking

Low unemployment is one of the four objectives, and CCEA expects you to explain who counts as unemployed, how it is measured, the main types and causes, and its effects on individuals, the government and the economy. The types of unemployment (cyclical, structural, frictional and seasonal) and the calculation of the unemployment rate are the parts most often tested. This is core Section 4 content and links closely to the business cycle and to the labour market.

What unemployment is and how it is measured

A person is unemployed if they are willing and able to work, are actively seeking a job, but cannot find one. People who are not looking for work (students, the retired, those choosing not to work) are not counted as unemployed; they are economically inactive.

The labour force (or workforce) is everyone who is either employed or unemployed: those in or seeking work. The unemployment rate is the percentage of the labour force that is unemployed.

The types and causes of unemployment

CCEA expects you to know the main types, each with a different cause.

• Cyclical (demand-deficient) unemployment is caused by a downturn or recession. When total demand falls, firms sell less, cut output and lay off workers, so unemployment rises across the whole economy. It falls again when the economy recovers.
• Structural unemployment is caused by a long-term change in the structure of the economy: an industry declines (such as coal mining or shipbuilding), and workers' skills no longer match the jobs available, so they stay unemployed even when the economy is growing.
• Frictional unemployment is short-term unemployment as people move between jobs; it is normal and usually brief.
• Seasonal unemployment affects industries that need workers only at certain times of year, such as tourism or farming.

The most serious for policy are cyclical (which needs higher demand) and structural (which needs retraining and new industries).

The effects of unemployment

Unemployment has costs at three levels, and good answers cover more than one.

For the individual, it means a loss of income and living standards, and can damage skills, confidence and health, with longer spells making it harder to find work again.

For the government, it means higher spending on benefits and lost tax revenue (the unemployed pay less income tax and spend less, so less VAT is collected), which worsens the public finances.

For the economy, unemployment is a waste of resources: labour that could be producing goods and services is idle, so the economy produces inside its production possibility frontier, below its potential. High unemployment can also reduce demand, deepening a downturn.

Why this matters

Unemployment is one of the four objectives, a calculation topic, and a target of both fiscal and monetary policy, which try to raise demand and create jobs in a downturn. It links to the business cycle (cyclical unemployment), the labour market, and inflation, since reducing unemployment too fast can push prices up. Examiners reward candidates who can calculate the rate correctly, distinguish the types (especially cyclical from structural), and explain the costs to individuals, the government and the economy.