7 Employment and unemployment

Explain why there may be some people unemployed whilst there are job vacancies. [4]
The unemployed may not know about the job vacancies (1).
They may lack the skills/qualifications to do the jobs (1) occupationally immobile/example of
occupational immobility (1). The jobs may be in different parts of the country (1) the
unemployed may be geographically immobile (1) due to e.g. differences in housing costs
(1).
They may be waiting for better paid jobs (1).
They may not be willing to work despite being registered as unemployed (1).

Analyse how an increase in investment may affect unemployment. [6]

It may increase unemployment if workers and capital goods are substitutes (1) machines
will replace workers (1).
Investment is a component of total (aggregate) demand (1) higher investment increases
total demand (AD) (1) higher AD can reduce cyclical unemployment (1).
It may reduce unemployment if workers and capital goods are complements (1) more
workers will be taken on to work with the capital goods (1).
Investment can increase labour productivity (1) this can make labour more attractive (1)
can make products more internationally competitive (1) raise total demand further (1)
encouraging firms to expand further (1).

Discuss whether an increase in a country’s labour force will increase income per head. [8]
Up to 5 marks for why it might:
• A larger labour force may enable greater advantage to be taken of division of
labour/specialisation / economies of scale (1) this can reduce average costs of production
(1) as workers can concentrate on what they are best at (1) can be trained more quickly (1)
reduces the amount of capital equipment needed (1) lower costs may increase sales at home
and abroad (1) increasing output and raising incomes (1).
• A larger labour force may reduce the dependency ratio (1) a higher proportion of workers
to non-workers will increase income per head (1).
• A larger labour force will enable successful firms to expand (1) this will increase GDP
(1).
• Multinational companies may be attracted to set up in the country by a larger labour force
(1) this may result in a rise in wages (1).
Up to 5 marks for why it might not:
• Population may increase by more than the labour force (1) this will increase the\
dependency ratio (1).
• The labour force may increase but demand for labour may not (1) so the unemployment
rate may increase (1) so income divided by population may fall (1).
• The quantity of the labour force may increase but the quality of the labour force may fall
(1) productivity may decline (1) reducing output and incomes per head (1).
• An increase in the labour force may increase competition in the labour market (1) lowering
wages (1).

Explain two reasons why someone may be of working-age but not in the labour force. [4]
• A person may be a homemaker (1) deciding to stay at home to e.g. look after children (1).
• A person may be a student (1) staying in education to improve qualifications/increase
employment prospects/increase earning potential (1).
• A person may have taken early retirement (1) as may not need to work/may be unfit to
work (1).
• A person may be sick/disabled (1) and so not able to work (1).
• Some people who have been unemployed for a long time may give up the search for
employment and so exit the labour force (1). These people are sometimes called
discouraged workers (1).
• A person may be working in the informal economy (1) not in official figures (1).

Analyse what may cause an increase in a country’s labour force. [6]

• Net immigration (1) of people of working-age (1) will increase the supply of potential
workers (1).
• A decrease in the number of people of working-age who are economically inactive (1)
reduction in those who are students/retired/homemakers/sick and disabled (1) this may be
the result of e.g. a fall in the school leaving age (1) or rise in the retirement age (1).
• An increase in the size of the population (1) due to a fall in death rate/rise in birth
rate/rise in the birth rate some years before (1).
• An increase in the cost of living (1) may force more family members to work/seek work
(1).

Discuss whether an economy will benefit from having a younger labour force. [8]
Up to 5 marks for why it might:
• A younger labour force may be more adaptable to new ideas (1) more up to date with
advances in technology (1) received up to date education (1).
• A younger labour force may be occupationally mobile (1) more willing and able to switch
jobs (1) enabling the economy to adjust to changes in demand (1) reducing structural
unemployment (1).
• A younger labour force may be more geographically mobile (1) reducing structural
unemployment (1).
• A younger labour force may be physically stronger (1) have less health problems (1) be
more productive/efficient (1) be prepared to work longer hours (1) increase output/GDP (1).
• A younger labour force may work for lower wages (1) reduce firms’ costs of production (1).
Up to 5 marks for why it might not:
• A younger labour force may be less experienced (1) not built up skills (1) less productive
(1).
• A younger labour force may require more training (1) increasing firms’ costs of production
(1).
• A younger labour force may be less reliable and patient than the older population
(1) this may reduce demand for some products (1).

Analyse how wage increases may cause unemployment. [6]

Wage rises may increase costs of production (1) if rise more rapidly than productivity (1)
higher costs of production may increase prices (1) higher prices may reduce demand (1)
lower demand will reduce firms revenue/profits (1) firms may reduce output (1) fewer
workers will be needed to make a lower output (1).
Higher wages may increase costs of production (1) firms reduce costs by substituting capital
for labour (1).
Firms may relocate to areas where wages are lower (1) to reduce costs (1).
Expect higher skills if pay higher wages (1) so may make some unskilled workers redundant
(1) as return from their labour is not sufficient (1).
Higher wages may affect particular industries (1) resulting in structural unemployment (1).

Analyse how the pattern of employment within an economy tends to change as the
country develops. [6]
The number/proportion employed in the primary sector tends to decline (1) productivity
rises meaning fewer workers are needed (1).
The number/proportion employed in the secondary sector tends to rise at first (1) and then
falls (1).
The number/proportion employed in the tertiary sector increases (1) most workers in
developed countries are employed in tertiary sector (1).
The number/proportion of skilled workers increases (1) as education levels develop (1).
The number/proportion of women employed increases (1) as social attitudes change (1).
The number/proportion of migrant workers may change (1) as income levels rise (1).

Discuss whether government policy measures can reduce unemployment.

Up to 5 marks for why they might:
Cut income tax (1) increase disposable income (1) increase consumer spending (1) raise
total demand
(1) increase output (1) create job vacancies (1) reduce cyclical unemployment (1) raise
reward from working (1) reduce voluntary unemployment (1).
Cut interest rates (1) can increase borrowing (1) reduce saving (1) increase consumer
spending (1) increase total demand (1) increase output (1) create job vacancies (1) reduce
cyclical unemployment
(1).
Introduce supply-side policy measures (1) e.g. education (1) can raise productivity (1)
increase labour
productivity (1) reduce structural unemployment (1).
Direct employment by the government (1).
Up to 5 marks for why they might not:
Consumers may lack confidence (1) so they will not spend more if income tax or interest
rates are reduced (1).
Firms may lack confidence (1) so will not expand output (1) and will not take on more
workers (1).
Firms may expand output without taking on more workers (1) due to employing more capital
(1) getting existing workers to work overtime (1).
Education may be in the wrong areas (1) privatisation may result in firms cutting
employment to reduce costs (1).
There may be external shocks (1) e.g. a global recession (1) which could offset government
policy measures (1).

Analyse how a reduction in government spending on education could cause

unemployment.
Lower government spending will reduce total demand (1) reducing output (1) causing firms
to cut back on the number of people they employ (1) causing cyclical unemployment (1).
Mismatch between demand and supply of skills (1) results in structural unemployment.
Fewer skilled/less qualified workers (1) less productive (1) making them less attractive to
employers (1) less adaptive to change (1) structural/frictional unemployment may increase
(1).
Results in fewer teachers/staff in education (1).

Analyse the causes of unemployment.

• A lack of total demand (1) low output (1) cyclical unemployment (1)
• Lack of skills/qualifications/training (1) resulting in occupational immobility (1)
• A lack of geographical mobility (1) caused by e.g. differences in house prices (1) resulting
in regional unemployment (1)
• Decline of domestic industries (1) resulting in structural unemployment (1)
• Workers being replaced by machines (1) resulting in technological unemployment (1)
• A time delay between workers changing jobs (1) lack of information about job vacancies
(1) frictional unemployment (1)
• High unemployment benefits discouraging people from seeking employment (1) voluntary
unemployment (1)
• Demand for labour may fall at certain times of the year (1) resulting in seasonal
unemployment (1) example (1)
Identify two problems that prevent a worker finding employment.
• lack of information on jobs available
• lack of vacancies/low demand for labour
• lack of skills/qualifications /experience/occupational mobility
• lack of geographical mobility
• possible age/gender/race/disability discrimination

Explain two costs of long-term unemployment to those who are unemployed.

1 mark each for each of two costs identified:
• loss of income
• reduced ability to get a job
• reduced confidence/self-worth
• decline in health
• reduced ability to educate children
• loss of skills
1 mark each for each of two explanations given:
• the unemployed may receive unemployment benefits which are usually lower than wages
or may receive no income/may experience poverty
• will lose out on training by not keeping up with advances in technology
• unemployment reduces confidence which makes it harder for someone to get another job
• unemployment can lead to mental health problems/may increase physical illness due to
less nutritious diet and poor housing
• lower income may mean children of the unemployed will receive less education which will
reduce their chances of getting a job

Analyse the effects that an increase in the labour force will have on an economy.
An increase in the labour force will increase the quantity of resources (1) increase productive
potential (1) enable more products to be produced (1) raise economic growth (1).
An increase in the labour force may reduce inflation pressure (1) enable supply to increase
to match higher demand (1).
An increase in the labour force may increase total wages paid (1) increasing total
spending/demand (1) causing demand-pull inflation (1).
An increase in the labour force available may reduce wages (1) reducing cost-push inflation
(1).
An increase in the labour force may increase employment (1) if the number of jobs available
increases (1) increasing income tax revenue for the government (1).
If not employed, will increase unemployment rate (1) higher spending on benefits (1).