Study Notes
Unemployment refers to the number of working-age people who are not employed but are actively searching for a job. It is a key indicator of economic activity and is measured as a percentage known as the unemployment rate.
- Working age population — number of people in a country’s population who are in the legal age limit to work. Example: People aged 16 to 65 in a country.
- Labour force — number of working age people actively participating in the labour market, including both employed and unemployed individuals. Example: A country with 125 million people in the labour force.
- Participation rate — the number of people in the labour force as a percentage of the working age population. Example: 89% participation rate means 89 out of 100 working-age people are in the labour force.
- Unemployment rate — the number of unemployed people as a percentage of the labour force. Example: 28% unemployment rate indicates 28 out of 100 people in the labour force are unemployed.
- Cyclical unemployment — unemployment resulting from a decrease in aggregate demand in the economy. Example: Layoffs during a recession.
- Structural unemployment — involuntary unemployment due to a mismatch between the skills demanded by employers and those offered by workers. Example: A factory worker unable to find a job in a tech-driven economy.
- Frictional unemployment — temporary unemployment arising from workers moving between jobs. Example: A recent graduate searching for their first job.
- Seasonal unemployment — unemployment resulting from seasonal changes in demand for labor. Example: Ski instructors being unemployed during summer.
Exam Tips
Key Definitions to Remember
- Working age population
- Labour force
- Participation rate
- Unemployment rate
- Cyclical unemployment
- Structural unemployment
- Frictional unemployment
- Seasonal unemployment
Common Confusions
- Confusing underemployment with unemployment
- Misunderstanding the difference between cyclical and structural unemployment
Typical Exam Questions
- What is the unemployment rate? Answer: The number of unemployed people as a percentage of the labour force.
- How is cyclical unemployment caused? Answer: It is caused by a decrease in aggregate demand in the economy.
- What are the economic costs of unemployment? Answer: Loss of real output, loss of tax revenue, and increased government spending on benefits.
What Examiners Usually Test
- Ability to calculate unemployment and participation rates
- Understanding of different types of unemployment and their causes
- Knowledge of the economic and social costs of unemployment