Why are some people out of work even when the economy is doing well?
What unemployment is and how it is measured, the main types and causes of unemployment, the costs of unemployment, and the meaning of full employment.
A focused answer for AQA GCSE Economics on what unemployment is, how it is measured, the main types and causes, the costs of unemployment, and the idea of full employment.
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What this dot point is asking
AQA wants you to define unemployment, explain how it is measured, describe the main types and causes, explain the costs of unemployment, and explain what full employment means. You should also be able to calculate an unemployment rate from labour force figures.
What unemployment is and how it is measured
It is measured two main ways:
- The claimant count: the number of people claiming unemployment-related benefits. It is quick to collect but misses those who do not claim.
- The Labour Force Survey (LFS): a large survey using the international (ILO) definition. It is more accurate but slower and based on a sample.
Types and causes of unemployment
- Frictional: short-term, while people move between jobs or search for a better match. Some is unavoidable in a healthy economy.
- Structural: long-term, as industries decline (coal, steel) or skills no longer match the jobs available. Hard to solve quickly because it needs retraining.
- Cyclical: rises in a recession when total demand and output fall, so firms cut jobs across the economy.
- Seasonal: linked to the season, such as tourism, farming or retail at Christmas.
The type of unemployment matters because each needs a different policy. Frictional unemployment can be cut by better job-matching and information, structural unemployment by retraining and regional support, cyclical unemployment by expansionary fiscal and monetary policy to raise demand, and seasonal unemployment by encouraging year-round activity. Diagnosing the type correctly is therefore the first step to tackling it.
The costs of unemployment
- For the unemployed: lost income, lower living standards, stress and possible loss of skills the longer they are out of work.
- For the government: more spending on benefits and less revenue from income tax and VAT, worsening the budget.
- For the economy: lost output, because resources (labour) sit idle and the economy produces inside its production possibility frontier.
Full employment
Worked example
Try this
Q1. State one way unemployment is measured in the UK. [1 mark]
- Cue. The claimant count or the Labour Force Survey.
Q2. Explain one cost of unemployment to the government. [3 marks]
- Cue. More people claim benefits while paying less income tax, worsening the government's budget.
Exam-style practice questions
Practice questions written in the style of AQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
AQA 20186 marksExplain the difference between structural and cyclical unemployment.Show worked answer →
Structural unemployment happens when the demand for a particular industry's output falls permanently, or workers' skills no longer match available jobs, for example coal miners losing work as the industry shrinks. It is long-term and linked to changes in the structure of the economy.
Cyclical unemployment is caused by a fall in total demand during a recession: as firms sell less, they cut jobs across the whole economy. It rises and falls with the economic cycle.
A 6 mark answer makes clear that structural unemployment is about mismatched industries or skills, while cyclical unemployment is about the overall level of demand in a downturn, and develops each with an example.
AQA 20214 marksA country has a labour force of 32 million and 1.6 million people unemployed. Calculate the unemployment rate. Show your working.Show worked answer →
The unemployment rate is the number unemployed as a percentage of the labour force: .
This gives .
So the unemployment rate is . Markers reward dividing the unemployed by the labour force (not the total population) and multiplying by 100. A common error is to divide by the whole population, which would understate the rate.
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Sources & how we know this
- AQA GCSE Economics (8136) specification — AQA (2017)