3.3.3—Low unemployment
- Syllabus
- First assessment 2022
- Objective
- 3.3.3
- Level
- SL
Low unemployment means work is available, not that nobody is jobless
The unemployment rate is unemployed people as a percentage of the labour force: unemployed ÷ (employed + unemployed) × 100.
Cyclical unemployment follows weak AD; structural unemployment reflects a skills or location mismatch; frictional and seasonal unemployment can remain even near full employment. Costs include lost output and income, fiscal pressure and personal or social harm.
If 8 people are unemployed and 192 are employed, the labour force is 200 and the unemployment rate is 4%. Retraining addresses a structural mismatch more directly than a general demand stimulus.
Classify the cause before choosing a policy; the same unemployment rate can hide very different problems.
People outside the labour force—such as those not seeking work—are not counted as unemployed, and 0% unemployment is neither realistic nor necessarily desirable.
Measurement is imperfect: discouraged workers who stop seeking work leave the labour force; underemployment, informal work and differences in survey definitions can hide labour-market weakness. The natural rate is frictional + structural + seasonal unemployment, excluding cyclical unemployment. Diagram minimum-wage unemployment as labour supplied exceeding labour demanded above equilibrium; structural unemployment as a left shift of labour demand in a market or region; and cyclical unemployment as a recessionary AD/AS gap below potential output.