Unemployment, Labour Markets, Income Distribution, Poverty and Demographics
This section covers unemployment, labour markets, income distribution, poverty and demographic change. The exam tests definitions, measurement and policy links between labour market outcomes and inequality.
Core rules
- The unemployed are without work, available to start and actively seeking work. The unemployment rate = unemployed divided by labour force times 100. The Live Register is not the unemployment count.
- Types include frictional (search), structural (skills mismatch), seasonal and cyclical (demand-deficient).
- The labour force participation rate = labour force divided by population of working age times 100. Discouraged workers can leave the labour force and artificially lower unemployment.
- The Lorenz curve plots cumulative income shares; the Gini coefficient ranges from 0 (perfect equality) to 1 (perfect inequality).
- Absolute poverty is below a fixed subsistence line; relative poverty is below a society's median-income threshold. Demographic ageing raises the old-age dependency ratio and pressures pensions and health spending.
Worked example
Labour force = 2.5m; unemployed = 125,000. Unemployment rate = 125,000 divided by 2,500,000 times 100 = 5%. If 50,000 discouraged workers leave the labour force, unemployment falls to 75,000 and the rate to 75,000 divided by 2,450,000 times 100 = 3.06%, but the labour market has not necessarily improved.
Traps
Do not use the Live Register as the unemployment rate. Do not count part-time underemployment as full employment. Do not confuse the Gini coefficient with the poverty rate. Do not treat all unemployment as voluntary.