Unemployment: Types & Effects
Government and the Macroeconomy · 4 question types
Exam Frequency Analysis
Past paper frequency (2018 to 2024)
This topic accounts for approximately 14% of your exam marks.
Types of unemployment (cyclical, structural, frictional, seasonal) and policy responses are tested in nearly every Paper 2 series.
Employment is the situation in which people of working age are in paid work, either working for an employer or self-employed.
Unemployment is the situation in which people of working age who are willing and able to work cannot find a job. The measures how widespread this is in the labour force.
Two parts of the unemployment 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 , not unemployed.
Full employment is the situation in which everyone of working age who is willing and able to work at the going wage rate has a job. It does not mean 0% unemployment: some frictional and seasonal unemployment always remains, so a small amount of unemployment persists even at full employment.
Defining employment, unemployment and full employment
What comes up: A 2-mark "Define unemployment" or "What does it mean to be unemployed?" question. "Define employment" and "What is meant by full employment?" are asked in exactly the same way.
Write (two marks): (1) A person of working age who is willing and able to work (2) and is actively seeking a job but cannot find one. For employment, say people of working age who are in paid work, either for an employer or self-employed. For full employment, say everyone willing and able to work at the going wage rate has a job, so only frictional and seasonal unemployment remains rather than none at all.
Watch out: All three elements — willing, able, and actively seeking — must be present. Someone who has stopped looking for work is classed as economically inactive, not unemployed, and would not be counted. Dropping any one of the three conditions will cost the second mark. Defining full employment as "everyone has a job" or "unemployment of 0%" loses the mark too.
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 therefore aim for full employment rather than for zero unemployment, which is neither possible nor desirable because some frictional unemployment is normal as people move between jobs.