Unemployment

Key terms:

Economically active population - defined as a person who is actively seeking work and
within the working age (18 – 65), not in full time education and declared physically fit to
work. This is sometimes called the Labour force or the working population.

Unemployment rate - the number of economically active people in the economy without
paid employment.

Hidden unemployment - this includes individuals who have given up looking for work
as they fear they have no chance of being successful. It also contains some part-time
workers who are seeking full time work as well as many overqualified people e.g.
university graduates working in jobs where no education is required. This is also referred
to as underemployment.

Economic costs of unemployment - the gap between national output when the economy
is in recession and the output level when the economy is at full employment, i.e. the size
of the recessionary gap. Examples include the fall in tax revenues and consumption,
when workers are laid off and the costs of the government making additional transfer
payments to those households on low incomes or without work.

Social costs of unemployment - examples include a loss of income and fall in living
standards. This impacts on the unemployed worker's family as well as the individual. If
the period without work becomes long term then the unemployed person may suffer from
a loss of self-esteem, motivation, depression and potential mental illness.

Unemployment (out of work) payments - payments made by some governments to the

unemployed, which can negate some of the financial loss to the family when a person
loses their job.

© Mark Johnson,
InThinking www.thinkib.net/Economics 1
Activity 1: What is unemployment?

Start by watching the following short video and then complete the questions that follow:

(a) Explain which of the following people would be included in the nation's unemployment
rate:

a housewife who wishes to work but not currently employed

a part time worker seeking full time employment
a student at college looking for a part-time job to supplement their studies
a worker of 55 - 60 who voluntary retires.

(b) Why does the above make it difficult for nations to accurately calculate unemployment
and why is it also sometimes difficult to compare unemployment rates between different
nations?

© Mark Johnson,
InThinking www.thinkib.net/Economics 2
Activity 2: The real rate of unemployment

Watch the following video and then answer the question: why is the official rate of
unemployment lower than the number of people unemployed?

Activity 3: The costs of unemployment

Watch the following video on the social and economic costs of unemployment and then
answer the questions that follow.