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IGCSE®/O Level Economics

6.2 Employment and unemployment

S16

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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 countriesFemale 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

Aggregate demand $ billion

Frictional unemployment: Short-lived unemployment as people change jobs

Seasonal unemployment: temporary unemployment because some production and consumer demand is seasonal

Structural unemployment: long-lived unemployment caused by industrial decline: many workers are made unemployed and have skills that are no longer wanted

Cyclical unemployment: prolonged, widespread unemployment during an economic recession due to falling and depressed aggregate demand

Can cause a regional

concentration of unemployment

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Labour market imperfectionsLabour 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 unemploymentThe 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