Employment and unemployment

Definitions and measurement

Employment - paid work carried out by people, including employees and the self-employed.

Unemployment - a situation in which people of working age are without work, are available for work and are actively seeking work.

Full employment - a situation in which almost everyone willing and able to work at current wage rates can find employment. Some short-term unemployment can still exist.

Labour force - people of working age who are employed or unemployed and actively seeking work.

Labour force survey - a survey of households used to identify who is employed, unemployed or economically inactive.

Economically inactive - people of working age who are not employed and are not actively seeking or available for work, such as some full-time students, carers or retired people.

Formula: Unemployment rate = (number unemployed / labour force) x 100

Worked unemployment-rate example

A country has 27 million employed people and 3 million unemployed people.

Find the labour force. 27m + 3m = 30m.

Apply the formula. (3m / 30m) x 100 = 10%.

Denominator warning: Divide by the labour force, not the whole population and not just the number employed.

Claimant count - the number of people receiving an unemployment-related benefit.

Measure	Strength	Limitation
Labour force survey	Can identify unemployed people who do not claim benefits and uses a standard definition.	Based on a sample and responses; subject to sampling error and misreporting.
Claimant count	Usually frequent, inexpensive and based on administrative records.	Excludes unemployed people who cannot or do not claim

A labour force survey can include people who are not claiming benefits and makes international comparison easier when definitions are consistent. However, sampling error, dishonest responses, underemployment and people who have stopped searching can make the headline rate incomplete.

Underemployment - a situation in which a worker has fewer hours than wanted or works below their skill level.

Changing patterns of employment

Pattern	Why it may change	Likely economic effect
Larger tertiary-sector share	As income and development rise, demand for services grows; technology may reduce primary and manufacturing employment.	More service jobs, but workers leaving other sectors may need retraining.
Larger formal-economy share	Development, regulation, banking access and business growth move work into registered organisations.	More reliable contracts and tax revenue, although some informal livelihoods may disappear.
More women in the labour force	Social attitudes, education, childcare and anti-discrimination measures change participation.	Labour supply, household income and tax revenue may rise.
Smaller public-sector share	Privatisation or a move towards a market economy transfers activity to private firms.	Competition may raise efficiency, but job security or universal access may weaken.

Types and causes of unemployment

Frictional unemployment - short-term unemployment while people move between jobs or enter the labour market.

Structural unemployment - unemployment caused by a mismatch between workers' skills or location and the jobs available.

Cyclical unemployment - unemployment caused by a fall in total demand during an economic downturn or recession.

Seasonal unemployment - unemployment caused by regular seasonal changes in demand or production.

Type	Simple cause chain	Targeted response
Frictional	Workers need time or information to match with vacancies.	Better job information, placement services and mobility.
Structural	Technology, trade or changing demand removes some jobs while new jobs require different skills or locations.	Retraining, education, housing/ transport support and regional investment.
Cyclical	Total demand falls -> firms sell less -> output and labour demand fall.	Expansionary fiscal or monetary policy when inflation risk is manageable.
Seasonal	Tourism, farming or construction demand changes predictably during the year.	Training for alternative off-season work and economic diversification.

Consequences of unemployment

Affected group	Possible consequences
Individual / household	Loss of income and self-esteem, poverty, debt, poorer health and loss of skills; more leisure time for some.
Producers / firms	Larger pool of applicants and weaker wage pressure, but lower consumer demand and possible skill loss.
Government	Lower income-tax and sales-tax revenue, higher benefit spending and pressure on the budget.
Economy	Output below potential, wasted resources, slower growth, inequality and possible social problems; inflation pressure may be lower.

Policies to reduce unemployment

Policy family	Examples and chain	Why it may fail / cost
Demand-side	Lower tax, higher government spending or lower interest rates -> total demand rises -> firms increase output and labour demand.	Can cause inflation, imports or a budget deficit; weak for structural unemployment.
Education and training	Skills become closer to vacancy requirements -> occupational mobility and employability rise.	Slow, costly and ineffective if suitable jobs are unavailable.
Mobility and information	Job centres, vacancy websites, transport or housing support reduce matching and geographical barriers.	People may still resist moving because of family, housing or cultural ties.
Incentives and labour-market reform	Tax/benefit changes or lower hiring costs increase the reward from work and firms' willingness to hire.	May reduce incomes or worker protection and has little effect when jobs are scarce.
Regional / infrastructure policy	The government attracts firms to high-unemployment areas and improves connections.	Expensive, slow and firms may leave when support ends.

Evaluation: Match the policy to the type of unemployment. A general rise in demand may reduce cyclical unemployment quickly but cannot by itself give a displaced worker the skills required for a new industry.