A labour force survey in the country of Calderin found that the labour force totalled 2,400,000 people, of whom 2,220,000 were in employment. (a) Define unemployment. Use the labour force survey data above to calculate Calderin's unemployment rate. [3] (b) In Calderin, a car fac…

Answer: ((a)) Unemployment is the state of being willing and able to work, and actively seeking work, but not currently employed. The number unemployed is found from the labour force survey as 2,400,000 − 2,220,000 = 180,000. The unemployment rate is 180,0002,400,000×100 = 7.5%. ((b)) This is an example of structural unemployment. The car factory has closed permanently (not temporarily, and not simply because of a general economic downturn), and the redundant workers' existing skills no longer match what the expanding industries in Calderin require, so they c… ((c)) For the government, unemployment reduces tax revenue, since unemployed workers pay no income tax and spend less, reducing revenue from taxes on spending too. At the same time, the government's spending rises, as more people claim unemployment and other welfare benefits. Together…. Part (a): Defining unemployment and calculating the rate Unemployment describes people who are willing and able to work and are actively seeking work, but who do not currently have a job. First, find the number of people unemployed: Unempl…

IGCSE Economics 0455: Calculating the Unemployment Rate and Structural Unemployment

Part (a): Defining unemployment and calculating the rate

Unemployment describes people who are willing and able to work and are actively seeking work, but who do not currently have a job.

First, find the number of people unemployed: $\text{Unemployed} = \text{Labour force} - \text{Employed} = 2{,}400{,}000 - 2{,}220{,}000 = 180{,}000$

Then apply the unemployment rate formula: $\text{Unemployment rate} = \frac{\text{Number unemployed}}{\text{Labour force}} \times 100$

$\frac{180{,}000}{2{,}400{,}000} \times 100 = 7.5\%$

Calderin’s unemployment rate is $\boxed{7.5\%}$ .

Part (b): Identifying the type of unemployment

This scenario describes structural unemployment.

The cause is a permanent closure of an industry (petrol-engine car production stopping in Calderin), not a temporary, calendar-based closure (which would be seasonal) and not a general downturn across the whole economy (which would be cyclical).
The redundant workers’ skills no longer match what employers in the expanding industries need, so they cannot move straight into new jobs without retraining. This mismatch between the skills workers have and the skills the economy now demands is the defining feature of structural unemployment.

Part (c): Consequences of unemployment for the government

Unemployment affects the government’s finances in two connected ways:

Lower tax revenue: unemployed workers earn no income, so they pay no income tax; they also tend to spend less, reducing the government’s revenue from taxes on spending (such as sales taxes).
Higher government spending: the government typically has to pay out more in unemployment benefits and other welfare support to those who have lost their jobs.

Together, falling revenue and rising spending push the government’s budget further towards a deficit (or reduce any surplus), leaving less money available for other priorities such as healthcare or infrastructure.

Final answers

(a) Unemployment rate $=\dfrac{180{,}000}{2{,}400{,}000}\times100 = \mathbf{7.5\%}$ .
(b) Structural unemployment. A permanent industry closure has left workers with skills that do not match the jobs now available.
(c) Lower tax revenue and higher spending on unemployment benefits, worsening the government’s budget position.