Measuring unemployment
A person is unemployed when they are of working age, able to work and actively looking for a job but cannot find one. Someone who has stopped searching is not counted. The unemployment rate is the share of the labour force without work, while the labour force is everyone employed plus everyone unemployed.
Key idea
Unemployment rate = (number unemployed ÷ labour force) × 100. A student, a retired person or a full-time carer is outside the labour force, so they are neither employed nor unemployed.
Types and causes
Economists group unemployment by its cause. Cyclical unemployment rises during a recession when total demand falls. Structural unemployment appears when the skills workers have no longer match the jobs available, for example when an industry closes. Frictional unemployment is short-term, covering the gap while people move between jobs. Seasonal unemployment follows the calendar, as in tourism or farming.
Example
A coal mine closes and its workers cannot immediately find factory work because they lack the required skills. This is structural unemployment, not cyclical.
Consequences and policy
Unemployment wastes resources: output that could have been produced is lost, and the government collects less tax while paying more benefits. For individuals it can mean lower income, lost skills and stress. Governments respond with demand-side policy (lower taxes or interest rates to raise spending) and supply-side policy such as training and better job information.
Remember
- Unemployed = able, willing and actively seeking work.
- Cyclical is caused by low demand; structural by a skills mismatch.
- Retraining tackles structural unemployment.