Government and the Macroeconomy · 4 question types
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.
A typical 4-mark "describe the types of unemployment" question rewards four clearly distinct types, each with a one-line explanation. The IGCSE syllabus names four.
Cyclical unemployment is caused by a fall in aggregate demand during a recession. When firms cannot sell as much output, they need fewer workers and lay people off.
The mechanism: a recession → AD falls → firms cut output → firms hire fewer workers / make existing workers redundant. As the economy recovers, AD rises again and cyclical unemployment falls.
This is also called demand-deficient unemployment because the underlying cause is too little demand for goods and services.
Example — the 2008 global financial crisis caused unemployment to rise sharply across many developed countries as households and firms cut their spending.
Structural unemployment is caused by the long-term decline of an industry, or a mismatch between the skills of unemployed workers and the skills required by the new jobs available.
Two distinct sources:
Structural unemployment is long-term. It does not go away when the economy recovers, because the underlying problem is not weak demand. The solution is retraining, education and regional policy.
Frictional unemployment is the short-term unemployment that arises when workers are moving between jobs: leaving one position and looking for the next.
This kind of unemployment is voluntary and temporary. A worker who has resigned from one job to look for a better one is frictionally unemployed for the days, weeks or months until they find the new position. Almost every healthy labour market has some frictional unemployment, simply because matching workers to jobs takes time.
Better information about available jobs (online job portals, job centres) reduces frictional unemployment by shortening the search.
Seasonal unemployment is caused by demand for labour varying with the seasons in particular industries.
Examples:
Seasonal unemployment is predictable; workers in seasonal industries often have second jobs or move between industries with opposite seasons.
| Type | Cause | Time horizon | Main policy response |
|---|---|---|---|
| Cyclical | Fall in aggregate demand (recession) | Short to medium term | Expansionary fiscal / monetary policy |
| Structural | Industry decline / skills mismatch | Long term | Retraining, education, regional aid |
| Frictional | Workers between jobs (voluntary) | Very short term | Better job information |
| Seasonal | Seasonal variation in demand | Recurring annually | Income support; encourage off-season work |