Unemployment: Types & Effects

Unemployment is the situation in which people of working age who are willing and able to work cannot find a job. The unemployment rate measures how widespread this is in the labour force.

Two parts of the definition examiners always look for.

• Willing to work. The person actively wants a job and is searching for one.
• Able to work. The person has the physical and legal capacity to take a job (right age, not full-time student, no condition preventing work).

People not in either group are not counted as unemployed. A retired person is not "unemployed". A student in full-time education is not "unemployed". A "discouraged worker" who has given up looking is technically counted as economically inactive, not unemployed.

Why governments target low unemployment

This was covered in topic 12 (macroeconomic aims), but the highlights:

• Reduces poverty and raises living standards.
• Raises tax revenue and cuts welfare spending.
• Uses the economy's productive capacity efficiently rather than letting it sit idle.
• Improves social wellbeing (long-term unemployment is linked to poor mental and physical health).

Most developed countries aim for an unemployment rate near the natural rate (often around 3–5%). Zero unemployment is neither possible nor desirable, because some frictional unemployment is normal as people move between jobs.