Cambridge IGCSE Economics 0455
Syllabus points
- Define unemployment and how it is measured.
- Explain the causes and types of unemployment.
- Explain the consequences of unemployment.
What is unemployment?
Unemployment is when people who are willing and able to work cannot find a job. The unemployment rate is the percentage of the labour force that is unemployed.
Unemployment rate = (number unemployed ÷ labour force) × 100
Key definitions
| Term | Definition |
|---|---|
| Unemployment | People able and willing to work who cannot find a job. |
| Labour force | Everyone who is either working or actively seeking work. |
Types (causes) of unemployment
- Cyclical (demand-deficient) — caused by a recession, when low demand means firms cut jobs.
- Structural — caused by the decline of an industry, leaving workers with the wrong skills or in the wrong place.
- Frictional — short-term unemployment while people move between jobs.
- Seasonal — caused by the time of year (e.g. tourism and farming jobs in the off-season).
Consequences of unemployment
| For the unemployed | For the economy |
|---|---|
| Lower income, hardship, stress | Lost output (below the PPC) |
| Loss of skills over time | Lower tax revenue |
| — | Higher government spending on benefits |
Unemployment harms individuals (lost income, skills) and the economy (lost output, lower tax, higher benefit costs).
Policies to reduce unemployment
- Cyclical — expansionary fiscal and monetary policy to raise demand.
- Structural/frictional — supply-side policies such as education, training and better job information.
Worked example
A large car factory closes because its models are outdated. Its workers become structurally unemployed — their skills no longer match available jobs. Simply boosting demand will not help; they need retraining (a supply-side response) to move into growing industries.
Common exam mistakes
- Confusing cyclical (recession) with structural (declining industry) unemployment.
- Matching the wrong policy to the type of unemployment.
Exam technique
Identify the *type* of unemployment from the context, then match a suitable policy — cyclical needs demand policy, structural needs supply-side policy.
Quick revision
- Types: cyclical, structural, frictional, seasonal.
- Costs: lost income and skills; lost output, tax and benefit costs.
- Cyclical → demand policy; structural → training.