Study Notes
Unemployment occurs when individuals who are capable and willing to work are unable to secure employment opportunities. It is important to distinguish between the economically active and inactive populations, and understand the difference between the level and rate of unemployment.
- Unemployment — occurs when individuals capable and willing to work cannot find jobs. Example: A person actively looking for work but unable to find a job.
- Economically Active — individuals seeking employment and part of the labor force. Example: A job seeker applying for multiple positions.
- Economically Inactive — individuals not seeking employment, such as students or retirees. Example: A university student focusing on studies.
- Unemployment Rate — the number of unemployed people as a percentage of the labor force. Example: 5% unemployment rate means 5 out of every 100 people in the labor force are unemployed.
- Frictional Unemployment — occurs when workers are between jobs. Example: An actor between roles.
- Structural Unemployment — arises from changes in the economic structure, leading to a mismatch of skills. Example: A factory worker losing a job due to automation.
- Cyclical Unemployment — results from a lack of aggregate demand in the economy. Example: Job losses during a recession.
- Seasonal Unemployment — occurs when demand for labor fluctuates with the seasons. Example: A ski instructor unemployed in summer.
Exam Tips
Key Definitions to Remember
- Unemployment
- Economically Active
- Economically Inactive
- Unemployment Rate
- Frictional Unemployment
- Structural Unemployment
- Cyclical Unemployment
- Seasonal Unemployment
Common Confusions
- Confusing the economically inactive with unemployed individuals
- Misunderstanding the difference between the level and rate of unemployment
Typical Exam Questions
- What is the difference between the economically active and inactive populations? Economically active individuals are those seeking employment, while inactive individuals are not seeking work.
- How is the unemployment rate calculated? It is the number of unemployed people as a percentage of the labor force.
- What type of unemployment is caused by a recession? Cyclical unemployment.
What Examiners Usually Test
- Understanding of different types of unemployment
- Ability to calculate and interpret the unemployment rate
- Knowledge of the consequences of unemployment for individuals, firms, and the economy