The government objectives of high employment and economic growth: types and measurement of unemployment, its effects, and economic growth and its link to living standards.

What this dot point is asking

The SQA wants you to explain two of the government's main objectives: high employment and economic growth. You need the types and measurement of unemployment and its effects, and the meaning and measurement of economic growth and its link to living standards.

Two key government objectives

Alongside controlling inflation, the government aims for a high level of employment and steady economic growth. The two are linked: a growing economy usually creates jobs, while high unemployment signals an economy producing below its potential. National 5 expects you to define, measure and explain the effects of both.

Unemployment: meaning and measurement

Unemployment exists when people who are willing and able to work cannot find a job.

Types of unemployment

The SQA expects you to know the main types, because the cause shapes the cure:

• Cyclical unemployment is caused by a downturn in the economy (a recession): when demand falls, firms cut jobs.
• Structural unemployment is caused by a long-term change in the structure of the economy, where industries decline and workers' skills no longer match the jobs available (for example the decline of coal mining or shipbuilding).
• Frictional unemployment is short-term unemployment while people move between jobs.
• Seasonal unemployment affects jobs that are only needed at certain times of year, such as tourism or fruit picking.

The effects of unemployment

High unemployment harms the whole economy:

• Lost output. Idle workers mean the economy produces less than it could - a waste of the scarce resource labour.
• Weaker government finances. The unemployed pay less income tax and spend less (less VAT), while the government pays more in benefits, so the budget worsens.
• Hardship and social effects. The unemployed and their families have lower incomes and living standards, and long-term unemployment can cause wider social problems.

Economic growth and living standards

Economic growth is the objective of producing more over time.

Growth matters because it eases the basic economic problem: producing more from the economy's resources lets more wants be met. It usually raises living standards through higher incomes, more jobs and more tax revenue for public services. (Growth can have downsides too, such as pollution or using up resources, but the core link the SQA tests is growth raising output, incomes and living standards.)

Why this matters across the course

Employment and growth complete the government's main objectives, alongside controlling inflation. The objectives can pull against each other (fast growth can raise inflation), which is why the government uses the taxation and spending tools from the government finance dot point. Growth and jobs also depend on trade and competitiveness, linking to the global economy.

Try this

Q1. Define economic growth and name how it is measured. [2 marks]

• Cue. A rise in total output over time, measured by the change in GDP.

Q2. Name two types of unemployment. [2 marks]

• Cue. Any two of cyclical, structural, frictional, seasonal.

Q3. Explain one effect of high unemployment on government finances. [2 marks]

• Cue. Less income tax and VAT received, more spent on benefits, so the budget worsens.