IGCSE Economics 0455

Topic: Economic Development - Poverty

Objective: Causes of Poverty: Unemployment

Unemployment is a significant cause of poverty. It means people who want to work cannot find jobs. This lack of income leads to financial hardship and makes it difficult for individuals and families to meet their basic needs such as food, shelter, and healthcare.

Understanding Unemployment

Unemployment can be categorized into different types:

• Frictional Unemployment: This occurs when people are temporarily between jobs. It's a natural part of a healthy economy as people search for better opportunities.
• Structural Unemployment: This happens when there's a mismatch between the skills of the workforce and the requirements of available jobs. It can be caused by technological changes or shifts in industry.
• Cyclical Unemployment: This is linked to the business cycle. During economic downturns (recessions), demand for goods and services falls, leading to job losses across various sectors.

Causes of Unemployment

Several factors contribute to unemployment:

1. Economic Downturns: As mentioned above, recessions lead to reduced business activity and job cuts.
2. Technological Advancements: Automation and new technologies can replace human labor, leading to job losses in certain industries.
3. Globalization: Businesses may relocate production to countries with lower labor costs, resulting in job losses in the home country.
4. Skills Mismatch: A lack of skills among the workforce that match the demands of employers can lead to unemployment.
5. Government Policies: Certain government policies, such as high minimum wages or excessive regulations, can sometimes discourage businesses from hiring.

Impact of Unemployment on Poverty

Unemployment has a direct and severe impact on poverty:

• Reduced Income: Without a job, individuals and families lose their primary source of income.
• Increased Financial Hardship: Difficulty in paying for essential goods and services like food, housing, and healthcare.
• Social Problems: Unemployment can lead to stress, anxiety, and other social problems.
• Reduced Economic Growth: High levels of unemployment reduce overall economic output and potential growth.

Cause of Unemployment	Explanation
Economic Downturns	Reduced demand for goods and services leads to business closures and job losses.
Technological Advancements	Automation replaces human labor in various industries.
Globalization	Businesses move production to countries with lower labor costs.
Skills Mismatch	Lack of skills among the workforce that match employer requirements.

Addressing unemployment is crucial for reducing poverty and promoting economic development. Governments can implement various policies to tackle unemployment, such as investing in education and training, promoting entrepreneurship, and creating a favorable environment for businesses to grow.