📉 Cyclical
When the economy is in recession, households spend less, so firms sell less and cut staff. Builders and car factory workers often lose jobs first. When the economy recovers, many of these jobs return.
Unemployment » Measuring Unemployment and Its Types
What you'll learn this session
Study time: 30 minutes
Edexcel spec: 2.1.1 (c)
- What unemployment is and how the ILO measure counts it
- How to calculate the unemployment rate
- The five types: cyclical, structural, seasonal, voluntary and frictional
- How to match an example to the right type
This topic is examined on Paper 2 (Macroeconomics and the Global Economy). One of the main aims of a government is low unemployment. Before we ask why it matters, we need to know what it is, how it is counted and why people end up without jobs.
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Unlock This CourseWhat is unemployment?
The ILO counts people as unemployed if they are without work, available and actively looking for a job
Unemployment is when people who are able and willing to work cannot find a job. Notice that it does not mean everyone without a job. A retired person or a full-time student who does not want to work is not unemployed.
Countries need a fair way to count the unemployed, so that figures can be compared over time and between countries. The standard method is the International Labour Organisation (ILO) measure. The ILO counts a person as unemployed if they are:
- without work (they do not have a job);
- available to start work; and
- actively seeking work (for example, applying for jobs).
A person must meet all three conditions. Someone who wants a job but has given up looking is not counted, because they are not actively seeking work.
Key terms:
- Unemployment: people who are without a job but are able and willing to work.
- ILO measure: a standard way to count the unemployed: without work, available to work and actively seeking work.
- Labour force: everyone who is in work (employed) plus everyone who is unemployed.
- Unemployment rate: the unemployed as a percentage of the labour force.
Calculating the unemployment rate
The number of people out of work is useful, but a big country will always have more unemployed people than a small one. The unemployment rate allows fair comparisons.
Formula
Unemployment rate (%) = (number unemployed ÷ labour force) × 100
Labour force = number employed + number unemployed
Worked example
In Country Tarsa, 33.2 million people are employed and 1.8 million are unemployed under the ILO measure.
Step 1: labour force = 33.2 + 1.8 = 35 million.
Step 2: unemployment rate = (1.8 ÷ 35) × 100 = 5.14%, which is 5.1% to one decimal place.
Worked example (working backwards)
Country Belmo has a labour force of 50 million and an unemployment rate of 6%.
Number unemployed = 6% of 50 million = 0.06 × 50 = 3 million.
Common slip: dividing by the whole population, or by the number employed, instead of the labour force.
Types of unemployment
Beach cafes hire in summer and lay off staff in winter: seasonal unemployment
People become unemployed for different reasons. Economists group the reasons into five types, because each has different causes.
Key terms:
- Cyclical unemployment: unemployment caused by a fall in total demand in the economy, usually in a downturn or recession.
- Structural unemployment: unemployment caused by the decline of an industry, or by workers' skills not matching the jobs on offer.
- Seasonal unemployment: unemployment caused by demand for workers changing at different times of the year.
- Voluntary unemployment: unemployment where people choose not to take the jobs available at the wages on offer.
- Frictional unemployment: short-term unemployment while people move between jobs.
🏭 Structural
Britain's coal mines closed over many years, and miners found that their skills did not suit the new jobs. Machines replacing workers can also cause it. These jobs do not simply come back, so workers may need retraining or to move.
🏖 Seasonal
Seaside hotels hire fewer staff in winter. Fruit pickers are needed only at harvest. Ski instructors are busy only in the snow season.
🙋 Voluntary
A qualified electrician turns down a job paying £11 an hour because they want at least £15. They are choosing to stay out of work at that wage.
🔄 Frictional
A shop assistant leaves one job and spends three weeks looking for a better one. A graduate spends two months finding a first job.
How to tell them apart
| Type | Key clue in a question | Likely to last |
|---|---|---|
| Cyclical | Recession, falling demand, firms cutting back | Until the economy recovers |
| Structural | Industry declines, new technology, skills mismatch | Often a long time |
| Seasonal | Time of year, tourism, farming | Months, then jobs return |
| Voluntary | Worker refuses a job or holds out for more pay | Depends on the worker |
| Frictional | Between jobs, searching | Short |
Read the clue carefully. A factory worker made redundant because the factory closed for good is structural. If the factory laid off staff only because demand fell in a recession, it is cyclical.
Common mistakes
Do not say that everyone without a job is unemployed. Students, retired people and people who have given up looking do not count under the ILO measure. Do not mix up cyclical (a lack of demand across the economy) with structural (one industry shrinking or skills not matching). Do not call a person voluntarily unemployed just because they are searching for a job: that is frictional.
Exam-style question
Country Ostra has the following labour market figures.
| Group | Number of people (millions) |
|---|---|
| Employed | 23.5 |
| Unemployed (ILO measure) | 1.5 |
Ostra's tourist resorts close for four months each winter. A large steelworks has also closed because of cheaper imports, and the former workers lack the skills for the new jobs in the area.
(a) Define 'unemployment'. [2 marks]
(b) Calculate the unemployment rate in Country Ostra. [2 marks]
(c) Identify the type of unemployment caused by the resorts closing each winter. [1 mark]
(d) Explain why the closure of the steelworks has led to structural unemployment. [3 marks]
Model answer
(a) Unemployment is when people are without a job (1) but are able and willing to work (1).
(b) Labour force = 23.5 + 1.5 = 25 million (1). Unemployment rate = 1.5 ÷ 25 × 100 = 6% (1).
(c) Seasonal unemployment (1).
(d) The steelworks was a whole industry in the area that has closed, so its workers lost their jobs (1). Their skills are in steel making and do not match the new jobs available (1), which means they cannot easily move into other work and may stay unemployed for a long time without retraining (1).
Exam tip
In a calculation, show the labour force step. If your final answer is wrong, you may still earn a mark for working out the labour force correctly.
Recap
- Unemployment means being without a job but able and willing to work.
- The ILO measure counts people who are without work, available and actively seeking work.
- Unemployment rate = unemployed ÷ labour force × 100, where labour force = employed + unemployed.
- Cyclical: lack of demand in a downturn. Structural: industry decline or skills mismatch. Seasonal: time of year. Voluntary: choosing not to take jobs on offer. Frictional: between jobs.