Cambridge IGCSE Economics: Employment and unemployment (0455) – Revision Notes

These notes condense section 4.7 of the Cambridge IGCSE Economics (0455) syllabus for examination in 2026. The syllabus is not tiered. For full explanations and longer worked examples, read the study guide; then test yourself with the practice questions. Also useful: the Cambridge IGCSE Economics hub, the printable checklist and the free diagnostics. All countries and figures here are invented.

4.7.1 Definitions to learn word for word

Term	Definition
Employment	Doing paid work, for an employer or for yourself
Unemployment	Without a job, able and willing to work, and actively looking for work at the going wage
Labour force	Employed plus unemployed
Full employment	Everyone who wants a job at the going wage can get one; some frictional unemployment remains

Not in the labour force: students, retired people, full-time carers, anyone not seeking work.

4.7.2 Changing patterns of employment

Change	Causes to quote
Larger tertiary sector	Rising incomes mean more spending on services; machines cut the number of farm and factory workers needed; firms buy more business services
Larger formal economy	Firms grow and register; better education; government enforcement and wish to raise tax revenue
More women in the labour force	Changing social attitudes; more girls educated; anti-discrimination laws; families want a second income
Smaller public-sector share	Move towards a market economy; privatisation; government reduces its role in production

Level of employment: rises when output grows; falls in a recession.

Reminder: shares of employment across three sectors always add to 100%. If primary falls from 55% to 15% and secondary is 25%, tertiary is 100 - 15 - 25 = 60%.

Worked reminder (sector numbers). Total employment is 4,000,000 and the tertiary share is 35%: 0.35 x 4,000,000 = 1,400,000 tertiary workers. If the share later reaches 50% of the same total, that is 2,000,000, a rise of 600,000.

Also link each change to development. Farm machinery frees workers, higher incomes create demand for services, and a growing economy brings more jobs into registered firms.

4.7.3 Measurement and the formula

Unemployment rate (%) = unemployed / labour force x 100

Method in steps:

1. Find the labour force: employed + unemployed.
2. Divide unemployed by that total.
3. Multiply by 100 and round as asked.
4. Write the unit: %.

Reverse questions: if unemployed = 250,000 and the rate is 5%, then labour force = 250,000 / 0.05 = 5,000,000.

	Claimant count	Labour force survey
Counts	People claiming unemployment benefit	People in a sample survey who say they have no job and want one
For	Cheap, fast, based on records	Includes non-claimants; one definition, so comparable
Against	Misses non-claimants; may include people working informally	Costly; sampling error; depends on honest answers

Worked reminder (survey scale-up). A sample of 15,000 people in the labour force contains 600 unemployed: 600 / 15,000 = 4%. If the whole labour force is 1,500,000, the estimate is 0.04 x 1,500,000 = 60,000 unemployed. If 52,000 people claim benefit, the claimant count is 8,000 below the survey estimate.

4.7.4 Types of unemployment

Type	Cause	Key phrase
Frictional	Moving between jobs; poor information	Short-term search
Structural	Industry decline; mismatch of skills or location; technology	Lasting; jobs exist but not for these workers
Cyclical	Fall in total demand in a recession	Demand-deficient; rises and falls with the economy

Chain for cyclical: total demand falls, sales fall, output falls, workers laid off.

Worked reminder. Labour force 10,000,000; unemployed 600,000, of which cyclical 270,000. Remaining 330,000 / 10,000,000 = 3.3%. If cyclical unemployment vanished, the rate would be 3.3%.

4.7.5 Consequences

Who	Costs	Possible benefit
Individual	Less income; stress; lost skills and confidence	Chance to retrain
Firms	Lower sales and profit as spending falls; loss of skilled staff	Easier hiring; lower wage pressure
Economy	Lost output (inside the production possibility curve); lower tax revenue; higher benefit spending; wider inequality; social problems	Possible fall in wage-driven inflation

Worked reminder. 20,000 more unemployed, tax lost 1,800 each, benefit paid 2,700 each. Fiscal cost = 20,000 x (1,800 + 2,700) = 90,000,000.

4.7.6 Policies

Type	Policy	Main weakness
Cyclical	Lower taxes, higher government spending, lower interest rates	Higher deficit; possible inflation near full capacity; time lags
Structural	Education, retraining, apprenticeships, relocation help, regional subsidies	Slow and costly; some workers will not retrain or move
Frictional	Job centres, vacancy websites, time-limited benefits	Cannot create jobs; a cut in benefits may cause hardship

Effectiveness in one line each: stimulus is quick but costly and risks inflation; training is targeted but slow; information schemes are cheap but limited to frictional cases.

Evaluation checklist: Does it fit the type? How long will it take? What does it cost? What side effects follow? What does success depend on?

Worked reminder. Spending up 400 million, multiplier 1.5: income rises 600 million. If 40,000 of output needs one worker, jobs = 15,000.

Chains of reasoning to write out

Use short chains, with each link causing the next.

• Cyclical unemployment rises: total demand falls, firms sell less, output falls, firms cut jobs, incomes fall, spending falls again.
• Structural unemployment persists: an industry declines, its workers’ skills or homes do not match vacancies elsewhere, so they stay out of work even when the economy grows.
• Retraining works: government funds courses, workers gain skills firms need, vacancies are filled, unemployment falls. It works only if the skills match the vacancies and people complete the course.
• Stimulus works: lower taxes or higher spending, total demand rises, firms hire. It fails if the unemployment is structural or if prices rise instead of output.

Must-know distinctions

• Unemployed versus not in the labour force. A student is not unemployed; a graduate looking for work is.
• Full employment versus zero unemployment. Full employment still has frictional unemployment.
• Structural versus cyclical. Structural: the jobs have gone for good, or the skills are wrong. Cyclical: jobs return when demand recovers.
• Claimant count versus survey. Records of benefit claims versus answers from a sample.
• Fall in the rate versus rise in jobs. The rate can rise while jobs also rise, if the labour force grows faster.

Quick self-test

1. Write down how the rate of unemployment is worked out.
2. A country has 1,880,000 employed and 120,000 unemployed. Calculate the unemployment rate.
3. Unemployment is 250,000 and the rate is 5%. Calculate the labour force.
4. Employment is 7,600,000 and the rate is 5%. How many people are unemployed?
5. Name the type of unemployment affecting car workers when a factory shuts because robots now do their jobs.
6. Give one reason why the claimant count may be lower than the labour force survey estimate.
7. In a labour force of 6,000,000, unemployment falls from 300,000 to 270,000. By how many percentage points does the rate fall?
8. Give two reasons why the share of women in the labour force may rise.
9. Calculate the fiscal cost of 20,000 extra unemployed, each paying 1,800 less tax and receiving 2,700 in benefit.
10. State one reason why a tax cut may not reduce structural unemployment.

Answers

1. Unemployed divided by the labour force, times 100.
2. Labour force = 1,880,000 + 120,000 = 2,000,000. Rate = 120,000 / 2,000,000 x 100 = 6.0%.
3. 250,000 / 0.05 = 5,000,000.
4. Employed are 95% of the labour force, so labour force = 7,600,000 / 0.95 = 8,000,000. Unemployed = 0.05 x 8,000,000 = 400,000.
5. Structural (technology replaces labour).
6. Some unemployed people are not entitled to benefit, or do not claim, so they appear in the survey but not in the count.
7. Before: 300,000 / 6,000,000 = 5.0%. After: 270,000 / 6,000,000 = 4.5%. Fall = 0.5 percentage points.
8. Any two: changing social attitudes; more girls in education; laws against discrimination; households wanting a second income.
9. 20,000 x 4,500 = 90,000,000.
10. It raises demand but does not give the workers the skills or location needed for the vacancies.

Where marks are usually lost

• Dividing by the population or by employment instead of the labour force.
• Stating that full employment means no one is unemployed.
• Naming a type of unemployment without linking it to the cause in the question.
• Writing “unemployment causes poverty” with no chain: job lost, income falls, spending falls.
• Describing consequences for only one group when the question asks for individuals, firms and the economy.
• Recommending one policy for every type of unemployment.
• Leaving an evaluation with no judgement or no reason for the judgement.
• Leaving out the units or the percentage sign on a calculation.

Official syllabus

Source: Cambridge IGCSE Economics (0455) syllabus for examination in 2026, version 2, Cambridge University Press & Assessment (Cambridge International), section 4.7.