S16

IGCSE®/O Level Economics

6.2 Employment and

unemployment

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 Monitoring employment trends

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 Global trends in employment

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 Who are the working and dependent
populations?

economically active population =

total supply of labour

The labour force participation rate measures the percentage of the population
of working age that is economically active, i.e. either in work or looking for work
and therefore able to produce goods and services

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 Labour force participation

Male participation rates have been falling: traditional male-dominated sectors such as mining and manufacturing
industries have been shrinking, particularly in many developed countries
Female participation rates have been rising: the cost of living is rising in many countries; it is now more acceptable for
women to work in many cultures; service industries are growing; there are more part-time jobs

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 Causes and types of unemployment

Frictional unemployment: Short-lived Seasonal unemployment: temporary unemployment

unemployment as people change jobs because some production and consumer demand is
seasonal
Aggregate demand
$ billion

Can cause a
regional
concentration of
unemployment

Cyclical unemployment: prolonged, widespread Structural unemployment: long-lived unemployment

unemployment during an economic recession due to caused by industrial decline: many workers are made
falling and depressed aggregate demand unemployed and have skills that are no longer wanted

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 Labour market imperfections
Labour market failures and imperfections may restrict employment opportunities:
XPowerful trade unions may restrict the supply of labour to an occupation to boost wages
XThe payment of unemployment benefits may reduce the supply of labour and increase
voluntary unemployment
XHigh non-wage costs, including employers’ contributions to fund publicly provided
unemployment and welfare benefits, may reduce the demand for labour
XMinimum wage laws may reduce the demand for less skilled labour
XLabour immobility can prevent unemployed people from moving to new jobs

Occupational immobility: inability to move to a new occupation

because a worker lacks transferable skills
Geographic immobility: inability to move location to take a new job
because of family ties and commitments (e.g. children at school), or
regional differences in house prices make it unaffordable

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 The costs of unemployment
The personal costs include:
•loss of income
•possible loss of self-esteem, leading to depression,
health and marriage problems

The costs to government include:

•loss of income tax revenue
•higher public spending on unemployment and welfare
benefits

The costs to an economy

•Unemployment is a waste of resources: output is
lower than what it could otherwise be
•Taxes may have to rise to pay for increased welfare
payments

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