Unemployment

What Unemployment covers

Unemployment is examined in Unit AS 2, Managing the National Economy. It covers the claimant count and the ILO measure of unemployment, calculating and interpreting unemployment statistics, unemployment and economic inactivity: a distinction that changes the numbers, the types of unemployment and what distinguishes them, the causes of unemployment and of economic inactivity, the costs and consequences of unemployment and inactivity and policies for unemployment and intervention in the labour market.

The 7 subtopics

Each one has its own page. CCEA AS Economics students sit this topic in the first year.

• The claimant count and the ILO measure of unemploymentILO measure of unemployment collected in the UK, claimant count measure and claimant count normally lower than the ILO figure.Open →
• Calculating and interpreting unemployment statisticsUnemployment rate need to be read alongside the employment rate, neither headline measure capture underemployment and national unemployment rate conceal serious labour market problems.Open →
• Unemployment and economic inactivity: a distinction that changes the numbersEconomic inactivity and explain how it differs from unemployment, discouraged worker and rise in economic inactivity reduce the economy's productive potential.Open →
• The types of unemployment and what distinguishes themFrictional unemployment and explain why some of it is unavoidable, structural unemployment and identify what causes it and cyclical unemployment and explain the mechanism that produces it.Open →
• The causes of unemployment and of economic inactivityHow a fall in aggregate demand causes unemployment, demand for labour described as a derived demand and rise in the exchange rate cause unemployment in traded sectors.Open →
• The costs and consequences of unemployment and inactivityUnemployment cost the individual who experiences it, unemployment cost firms and unemployment cost the government and the public finances.Open →
• Policies for unemployment and intervention in the labour marketHow expansionary fiscal policy reduces cyclical unemployment, cut in interest rates reduce unemployment and demand-side policy the wrong instrument for structural unemployment.Open →

What you need to know

Answer each one before you reveal it.

Take Unemployment further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

• Voluntary unemployment vs Involuntary unemployment

  Voluntary unemployment: a job at the going wage is available and declined. Involuntary unemployment: a job is wanted at the going wage but cannot be obtained.

• The output gap vs The budget deficit

  The output gap: comparing actual output with the economy's productive potential. The budget deficit: comparing government spending with government revenue.

• A current account deficit vs A budget deficit

  A current account deficit: a shortfall in the country's earnings from the rest of the world. A budget deficit: a shortfall in the government's revenue against its spending.

Questions from this topic

Each one with the model answer underneath.

1. 1

   What two conditions must a person satisfy to be counted as unemployed under the International Labour Organisation definition?

   Model answer

   The person must be without a job but available to start work within the next two weeks, and must have been actively seeking work in the previous four weeks. Someone who has found a job and is waiting to start within the next two weeks also counts. Both conditions matter: being without work is not enough on its own, since a person must also be available and searching to be classed as unemployed rather than economically inactive.

2. 2

   How is the ILO measure of unemployment collected in the UK?

   Model answer

   It comes from the Labour Force Survey, a large sample survey of households conducted continuously, in which people are asked about their activity in a reference period. Because it is a survey of what people actually do, it captures anyone meeting the definition regardless of whether they are entitled to any payment from the state. The results are grossed up from the sample to produce estimates for the whole population.

3. 3

   What does the claimant count measure?

   Model answer

   It counts the number of people claiming unemployment-related benefits and required, as a condition of receiving them, to seek work. It is compiled from administrative records of the benefit system rather than from a survey, so it is essentially a by-product of paying benefits rather than a purpose-built measure of joblessness.

4. 4

   Why is the claimant count normally lower than the ILO figure?

   Model answer

   The claimant count only includes people who both qualify for and actually claim the relevant benefits, whereas the ILO measure includes anyone searching and available for work. Many genuinely unemployed people are excluded from the claimant count: those disqualified by a partner's income or by household savings under a means test, those who have not built up sufficient contributions, and those who simply do not claim. Since the ILO definition has no such conditions, it captures a larger group.

5. 5

   Under what circumstances could the claimant count exceed the ILO measure for a particular group?

   Model answer

   It can happen where someone claims a work-related benefit while not meeting the ILO test of active search and availability, for instance if they are not genuinely searching but comply formally with the conditions of the claim. It can also occur where a person works a small number of hours, which counts as employed under the ILO definition since any paid work in the reference week qualifies, while still receiving benefit. These cases are a minority, which is why the claimant count is lower overall.

6. 6

   Compare the strengths of the claimant count and the ILO measure as indicators of unemployment.

   Model answer

   The claimant count is available quickly, is cheap because it uses records that already exist, is a complete count rather than a sample so it carries no sampling error, and can be broken down to very small geographical areas. Its fundamental weakness is that it measures entitlement rather than joblessness, so a change in benefit rules alters the figure without a single person's employment status changing. The ILO measure applies a consistent definition unaffected by benefit policy and permits international comparison, which is its principal strength. Its weaknesses are that it is a sample survey and therefore subject to sampling error, it is published with a longer delay, and it is far more expensive to produce.

What is inside Levo

Six ways to work the same material.

Unemployment revision questions

Is Unemployment examined at AS in CCEA Economics?

Yes. It sits in Unit AS 2, which you take in the first year, so it is on the AS paper as well as counting towards the full A level.

What does Unemployment cover in CCEA AS-Level Economics?

7 subtopics: the claimant count and the ilo measure of unemployment, calculating and interpreting unemployment statistics, unemployment and economic inactivity: a distinction that changes the numbers, the types of unemployment and what distinguishes them, the causes of unemployment and of economic inactivity, the costs and consequences of unemployment and inactivity and policies for unemployment and intervention in the labour market. Each one has its own page with questions and model answers.

How is Unemployment organised?

By the CCEA 4410 specification, subtopic by subtopic, so it matches the order you are taught it in.