What Factors Affect Cyclical Unemployment Rates?

Alex Newth

Cyclical unemployment rates are directly affected by an economic recession or depression, but there are several individual factors that affect this unemployment type. A negative economy, with rising unemployment rates and people getting less money overall, often affects cyclical unemployment rates. The negative economy or other sweeping factors may mean a substantially lower demand or consumption of items, which is another direct cause of cyclical unemployment. Lower investments in the stock market or similar establishments can lead to less money for businesses, which may force them to lay off employees. If output is low, then there are not enough products for people to buy, and businesses have to lay off employees to keep from losing money.

An economy with rising unemployment rates often affects cyclical unemployment rates.
An economy with rising unemployment rates often affects cyclical unemployment rates.

Negative economic growth often leads to layoffs and less money overall for people. If they have less money, then most people spend less and hold on to what money they do have to use for bills and necessary expenses. While this may help people survive, this tends to lead to lower business profits, which leads to a rise in cyclical unemployment rates.

Cyclical unemployment rates are impacted by a recession or depression.
Cyclical unemployment rates are impacted by a recession or depression.

While negative economic growth often leads to lower demand and consumption, these may be affected by other factors. For example, if there is a long string or poor products or quality issues that affect an entire country or region, then this also can cause low demand and consumption. If products are made too well and people do not need to buy more, this also can cause lower demand, because there would be no reason to buy more of an item that will last indefinitely. Regardless of the cause, when demand and consumption go down, this causes lower sales and cyclical unemployment rates are affected.

Many businesses rely on money from investors to fund their operations or to create new products. If investors are less willing to give businesses money, — whether the result of a recession or a negative economy — then businesses have less investing income. When businesses cannot recover from these losses, they have to cut employees to keep from losing money.

Low output is another factor that affects cyclical unemployment rates, and it is a condition similar to low demand. During a low-demand scenario, businesses are not able to sell as many products as anticipated; during a low-output scenario, businesses do not have enough items to sell. Both lead to businesses not selling enough to make a functional profit, which then affects cyclical unemployment rates. Decreased output can occur from lack of resources, a lack of funds for higher production, not enough employees, or a lack of experience.

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Discussion Comments


Okay, so not enough sales means lower profitability, which in turn leads to layoffs to lower the breakeven point and increase profits.

But why not just consider lowering the wages instead? I'm sure people would be much more accepting of the situation and worker morale wouldn't drop as it would in the case of massive layoffs.

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