What is Cyclical Unemployment?

Business Knowledge

Cyclical Unemployment defines the condition of the company’s decreasing employment force due to recession and lack of consumer’s demand for goods or services. The reason for the transformation of cyclical employment into cyclical unemployment is dependent on the business sales percentage, production, demand, and supply. By the way, business activities, or we can say the business cycle is highly responsible for the cyclic unemployment because ups and downs in business can come at any moment that gives birth to unemployment.

We have learned kinds of unemployment such as open, structural, and frictional but now we will also learn one more kind of unemployment which is called “cyclical unemployment” which puts a bad impression on workers or employees during recession time.

First of all, we will learn two important terms that involve cyclic unemployment or the reason for this happening is cycle unemployment that are the phases of the business cycle, the business cycle also causes cyclical unemployment.

Recession: Recession defines the slow movement in the business activities due to low demand by consumers such as if you have a shop of clothes and you are giving an order of clothes for consumers but the demand of consumers has been decreased due to covid-19 so as a shop owner you will give order according to % or monthly sales and consumer’s demand so that you never face any kind of issues like the overload of debts (account payables) and overload of goods that you ordered. 

In the above example, low consumer demand represents the recession in business due to a shortage of money. If demand decreases, productivity and sales also decrease, and on the other hand, if demand increases, productivity, and sales also increase. Recession depends on overall the consumer’s interest and their action. It comes without any notice or any change, it comes instantly that rapidly declines the economic growth by which demand is decreased but productivity is increased due to drastic change.

Depression: Depression represents the increasing percentage of unemployment that directly affects workers’ wages or their jobs. After the depression, there is no hope for workers that they will fit in their position for a long time or will achieve their valuable position in the company.

Suppose, you are running a manufacturing company and you have noticed a big decline in economic growth by which your company can badly affect, in that situation you can take up many steps to recover your over productivity and oversupply market and from them, reducing the number of workers is the quickest way to see results for recovering those situations. This way can be beneficial for the company but not for the workers because companies reduce their expenses like wages or salaries that they have to pay to the workers so that they can balance their business debts over financial burden but workers have to suffer due to joblessness.

How does cyclical unemployment affect GDP?

GDP refers to Gross Domestic Products which is calculated by summing up all of the money that is spent from the business activities such as sales from consumers, and other activities. It includes all the money which is received by earning from the business to increase the company’s growth and it is possible due to expansion in economic growth. As we know better economic growth is always possible from high consumer demand. 

  • When consumer demand decreases, cyclical unemployment and GDP also decrease.
  • When consumer demand increases, cyclical unemployment, and GDP also increases.

GDP defines the value of items (goods or services) which is produced for the consumers’ demand after decreasing its real production value. 

If the company know about upcoming recession so they can easily control productivity but recession does not come with notice, it comes with drastic change by which the company is imbalanced and they decide to reduce workforce or human resource department by terminating some workers ie. spread unemployment that weighs heavily on workers, makes them unemployed.

At the time of depression, demand keeps on decreasing due to consumer’s interest, and shortage of money, which creates unemployment.

Does Cyclical unemployment stay for a long time?

No, Cyclical unemployment does not stay for a long time, it comes and goes that totally depends on consumer demand and it cannot be changed by anyone, everyone has to face this recession period by adopting some techniques. It puts a negative impression on market economic growth and workers’ lives. It keeps changing according to increasing and decreasing demand for goods or services that affects all the business activities and human force.

Negative behavior of cyclical unemployment

Sometimes negative behavior is also taught how to handle business in critical situations. When cyclical unemployment comes, the demand for employees reduces even if many of the workers are terminated every day due to low demand for goods. It directly affects economic growth because when economic growth decreases, a company’s goodwill will decrease. The negative behavior does not stay for a long time when market health is fine with consumer satisfaction so automatically recession period goes out.

Reasons for Cyclical unemployment

The reasons for decreasing the demand of consumers can be many which we will discuss:

  • Low demand of goods or services
  • Due to fall in the goods price

Both are the main reasons for spreading a cyclical unemployment but how, let’s see:

Low demand of goods or services

Only the consumers have the right to make demands, that’s why it is called business growth depends on consumers. Low demand represents the slow economic growth that is not good for market health. To improve this situation the government also becomes a part by applying fiscal and monetary policies.

But why low demand, it is the main question.

Customer satisfaction

It is the main reason for decreasing demand by consumers, customer satisfaction is also important for increasing the demand. 

When customers are not happy with the company’s products or services, it decreases their demand, and recession comes. During the recession period, companies are trying to balance the situation by applying strategies for growing the market health with consumers’ satisfaction to pay all their debts and fulfill their obligation by reducing the number of workers after terminating them so that they can reduce the burden of wages or salaries and additional employee benefits.

When the customers are satisfied with the market products, it increases their demand by which companies think about improving the quality of workers by hiring them. 

Fall in price

The other reason for a recession in the market is a fall in price, when the price falls due to low demand by consumers, it decreases the value of goods or services and due to value declination, companies reduce % of workers to manage the production and supply market.

How does cyclical unemployment affect economic growth?

Cyclical unemployment affects economic growth very badly due to suddenly declining demands by consumers. Economics are badly affected due to unemployment. All the business activities are frozen for some time. To manage all these things, the industry needs to balance different departments such as production, sales, and HR departments in which low workers are required during the recession period due to low consumption. Every action is connected that’s why it affects.

Due to low consumption, economic growth falls because economic growth is calculated in terms of the growing market value of produced goods or services through GDP. The reason for low consumption is the low number of workers.

After the recession period, economic growth increases automatically due to high consumption and high consumption depends on a large number of workers.

In simple words, sometimes the economy faces prosperity which includes high investment, better production, and income due to proper human resources (a large number of workers), and sometimes depression which includes low investment, production, and income due to lack of human resource ( less number of workers).

Best Example that describes cyclical unemployment

American had faced the recession period between 1929-1930, this depression is also counted as one of the greatest experienced depressions which affected many other countries. America was also a developing country but still, they faced depression and recession in the economy that was not good. At that time, America’s GDP had fallen down due to sudden low consumption and due to joblessness many workers were not able to pay their debts and were trying to manage all the obligations when the financial sector came as a helper for debtors. Then the condition was recovered and all normal.

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