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Study Notes

2.1.3 Employment and Unemployment (Edexcel)


Last updated 19 Sept 2023

This Edexcel study note covers Employment and Unemployment

a) Measures of Unemployment:

  1. Claimant Count:
    • The claimant count is a measure of unemployment based on the number of people who are claiming unemployment-related benefits, such as Jobseeker's Allowance.
    • It provides a narrow definition of unemployment, as it only includes those actively seeking and receiving government benefits.
  2. International Labour Organisation (ILO) and the UK Labour Force Survey:
    • The ILO defines unemployment as individuals of working age who are without work, actively seeking work, and available for work.
    • The UK Labor Force Survey is the primary source of unemployment data in the UK and follows the ILO definition.
    • It provides a broader and more comprehensive picture of unemployment, including those not eligible for benefits.

b) Distinction between Unemployment and Under-Employment:

  • Unemployment refers to individuals who are not currently employed but are actively seeking and available for work.
  • Under-employment occurs when individuals are employed but their job does not fully utilize their skills and qualifications. This can result in part-time work, low wages, or jobs below their skill level.

c) Significance of Changes in Employment, Unemployment, and Inactivity:

  • Employment Rate: Measures the proportion of the working-age population in employment. A rising employment rate indicates economic growth.
  • Unemployment Rate: Measures the proportion of the labor force actively seeking work. A high unemployment rate indicates economic problems.
  • Inactivity Rate: Measures the proportion of the working-age population that is not in the labor force. It can indicate a lack of job opportunities or demographic factors.

d) Causes of Unemployment:

  • Structural Unemployment: Occurs when there is a mismatch between the skills of the workforce and the requirements of available jobs.
  • Frictional Unemployment: Temporary unemployment when individuals are between jobs or entering the workforce.
  • Seasonal Unemployment: Linked to seasonal variations in demand, e.g., tourism or agriculture.
  • Demand Deficiency (Cyclical) Unemployment: Arises from a lack of aggregate demand during economic downturns.
  • Real Wage Inflexibility: When wages are too high, leading to job cuts or an unwillingness to hire.

e) Significance of Migration and Skills for Employment and Unemployment:

  • Migration can impact employment by changing the supply of labor in specific regions. Immigrants may fill labor gaps, but this can also lead to wage pressures.
  • Skills are crucial for employment. A highly skilled workforce is more adaptable and less prone to unemployment in a changing economy.

f) Effects of Unemployment:

  • Consumers: Reduced income can lead to lower consumer spending, impacting businesses.
  • Firms: High unemployment can lead to a larger labor pool, potentially reducing wage pressures.
  • Workers: Lost income, reduced job prospects, and psychological stress.
  • Government: Increased spending on unemployment benefits and lost tax revenue, social issues.
  • Society: Social unrest, reduced well-being, and inequality.

Real-World Example: During the 2008 financial crisis, structural unemployment increased as workers in declining industries (e.g., manufacturing) struggled to find jobs in growing sectors (e.g., technology). This highlighted the importance of retraining programs and skills development to address unemployment issues.

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