June 2012 Context 1
Unemployment in the UK
Define the term ‘structural unemployment’ (Extract C, lines 15-16).
1) Structural unemployment is when there is a long-term decline in an industry,
leading to fewer jobs being available as the demand for labour falls. This could be
due to technological improvements in an industry replacing the need for workers or
foreign competition causing a decline in an industry. Thus there is a mismatch
between the workers’ skills and the requirements for new job opportunities.
Using Extract A, identify two significant points of comparison between the rate
of growth in real GDP and unemployment over the period shown.
2) One point of comparison between the rate of growth of real GDP and
unemployment between 2007 and 2009 is that real GDP peaks at 2.9% in Q3 of 2007
whereas unemployment reaches a peak level of 2.5 million in Q1 of 2010.
Another point of comparison is that the rate of growth in real GDP is more volatile
than that of unemployment, with the real GDP levels ranging from 3% (in Q2 and
Q3 2007) to -6% (in Q2 2009.) Unemployment levels are more stable, ranging from
around 1.6 million (in Q4 2007) to a peak of 2.5 million (in Q1 2010.)
3) Extract C (lines 6 – 8) states that the ‘overall growth in aggregate demand is
likely to be less than the economy’s underlying trend rate of growth and some
economistshave predicted that unemployment will rise to around 2.7 million’.
Explain why unemployment is likely to rise if aggregate demand grows more
slowly than the underlying trend rate of growth of the economy.
As can be seen in the diagram, when aggregate demand grows more slowly than
the underlying trend rate of GDP in the economy, a negative output gap is
produced. This negative output gap is likely to cause a rise in unemployment,
which is defined as the number of people who are able, available and willing to
work but cannot find a job despite an active search for work. As a result of the
negative output gap, firms will aim to decrease production and maintain their
profit margins and as a result will lay off workers, increasing the level of
unemployment. This is called cyclical unemployment and is defined as involuntary
unemployment due to a lack of demand for goods and services.
Extract B (Lines 6 – 8) states: ‘Measures designed to reduce the size of the
budget deficit mean that it is inevitable that job losses in the public sector will
continue during the years ahead.’ Using the data and your economic
knowledge, discuss the view that the measures taken to reduce the size of the
budget deficit will inevitably result in a rise in unemployment in the UK.
4) A budget deficit is when, in a particular year, total government expenditure
exceeds total government revenue from taxes. The last time the UK government
ran a budget surplus was in 2001 and since then successive governments have spent
more than they received in taxes. Currently in the UK the Conservatives are trying
to reduce the budget deficit and in April 2013 it was announced the deficit was at
£5.6 billion, £2.5 billion less than in April 2012. During the same period the
unemployment rate in the UK actually fell from 8.0% to 7.7% thus disagreeing with
the idea that a reduction in the budget deficit will inevitably result in a rise in
unemployment in the UK. In fact, just 3 days ago it was announced that the
Unemployment in the UK
Define the term ‘structural unemployment’ (Extract C, lines 15-16).
1) Structural unemployment is when there is a long-term decline in an industry,
leading to fewer jobs being available as the demand for labour falls. This could be
due to technological improvements in an industry replacing the need for workers or
foreign competition causing a decline in an industry. Thus there is a mismatch
between the workers’ skills and the requirements for new job opportunities.
Using Extract A, identify two significant points of comparison between the rate
of growth in real GDP and unemployment over the period shown.
2) One point of comparison between the rate of growth of real GDP and
unemployment between 2007 and 2009 is that real GDP peaks at 2.9% in Q3 of 2007
whereas unemployment reaches a peak level of 2.5 million in Q1 of 2010.
Another point of comparison is that the rate of growth in real GDP is more volatile
than that of unemployment, with the real GDP levels ranging from 3% (in Q2 and
Q3 2007) to -6% (in Q2 2009.) Unemployment levels are more stable, ranging from
around 1.6 million (in Q4 2007) to a peak of 2.5 million (in Q1 2010.)
3) Extract C (lines 6 – 8) states that the ‘overall growth in aggregate demand is
likely to be less than the economy’s underlying trend rate of growth and some
economistshave predicted that unemployment will rise to around 2.7 million’.
Explain why unemployment is likely to rise if aggregate demand grows more
slowly than the underlying trend rate of growth of the economy.
As can be seen in the diagram, when aggregate demand grows more slowly than
the underlying trend rate of GDP in the economy, a negative output gap is
produced. This negative output gap is likely to cause a rise in unemployment,
which is defined as the number of people who are able, available and willing to
work but cannot find a job despite an active search for work. As a result of the
negative output gap, firms will aim to decrease production and maintain their
profit margins and as a result will lay off workers, increasing the level of
unemployment. This is called cyclical unemployment and is defined as involuntary
unemployment due to a lack of demand for goods and services.
Extract B (Lines 6 – 8) states: ‘Measures designed to reduce the size of the
budget deficit mean that it is inevitable that job losses in the public sector will
continue during the years ahead.’ Using the data and your economic
knowledge, discuss the view that the measures taken to reduce the size of the
budget deficit will inevitably result in a rise in unemployment in the UK.
4) A budget deficit is when, in a particular year, total government expenditure
exceeds total government revenue from taxes. The last time the UK government
ran a budget surplus was in 2001 and since then successive governments have spent
more than they received in taxes. Currently in the UK the Conservatives are trying
to reduce the budget deficit and in April 2013 it was announced the deficit was at
£5.6 billion, £2.5 billion less than in April 2012. During the same period the
unemployment rate in the UK actually fell from 8.0% to 7.7% thus disagreeing with
the idea that a reduction in the budget deficit will inevitably result in a rise in
unemployment in the UK. In fact, just 3 days ago it was announced that the
