Cyclical, or Keynesian
unemployment, is unemployment that is caused by fluctuations in a country’s
economic activity. Appears when a nation, or a large part of it, falls into
periods of recession and disappears when economic and productive expansion
begins to develop. It should be noted that the recession is that period, where
the economic environment of a country declines, that is, decreases
considerably. When this enters the scene, the whole system is affected, since
basic needs cannot be met within the territory, and large quantities of
products cannot be exported if they are also dependent on them.
In economic terms, it is said that
cyclical unemployment is a fluctuation of the unemployment rate with respect to
its natural rate, that is, the unemployment rate that cannot be reduced and is
considered normal in an economy.
The great losses of money make
that the employers decide to reduce the expenses of their company and most of
the time, they begin by the massive dismissals (the entrance of money is much
smaller than the exit of it). One of the reasons why workers are also fired is
because maybe the company does not have enough capital to pay them for the work
they do. Countries always seek to protect workers from situations like this, so
they urge companies to maintain the same number of job offers in times of recession.
(The Economic Times, 2018) (Dineshbakshi.com, 2018)
As we see in the graph above, there is an equilibrium point between the
demand for workers and the supply for work. At this equilibrium point we see
how the number of workers and salaries are balanced as well. When the demand
decreases, and the line shifts to the left, we see a decrease in the number of
workers and, in turn, a decrease in the average price of wages.
How to determine the cyclical
The formula for the cyclical
unemployment rate accounts for the other two types of unemployment and the
Cyclical unemployment rate = Current
unemployment rate – (Frictional unemployment rate + Structural unemployment
(CFI – Corporate Finance Institute, 2018)
Causes of cyclical
Cyclical unemployment increases
when there is a fall in the economic activity of a country. In times when
companies reduce their sales and investment, the demand for work is also
reduced, so some people are dismissed from their jobs while others cannot find
a new job.
It is expected that this type of
unemployment will be reduced as economic activity starts to reactivate.
Unemployment is reached because
the labor market does not work efficiently, and supply and demand are not
The different reasons why this can
Companies and workers can
influence the salary. If wages are low, companies will demand more workers and
workers will be less motivated to work on low salaries. On the contrary, there
will be more people willing to work with higher the salaries.
The worker and the employer are
not only interested in salary conditions. There are other conditions to take
into account such as the legislation on dismissal, regulatory vacations or
social benefits, such as medical insurance or restaurant tickets.
The labor legislation must be
taken into account. There are organisms that regulate it and among the topics
discussed we can find labor contracts, setting a minimum wage or compensation
unemployment is a type of work agreement in which a person is routinely
employed for part of the year but spends the remaining months or weeks without
work. This situation is more commonly associated with temporary jobs, dependent
on time such as a lifeguard and some construction workers.
Tourism jobs related to specific
seasons (such as seaside resorts or ski centers), as well as more sporadic
employment in seasonal groups such as theater companies, may also fall into
This type of work usually
revolves around fixed calendars that employees both know and understand exactly
when they will be out of work. In many cases, seasonal employees can accumulate
unemployment benefits sponsored by the government in their season.
defining characteristic of seasonal unemployment is its predictability. In
almost all cases, workers accept these types of jobs with full knowledge that
they are only temporary. Employees are dismissed usually at a pre-established
date but, usually, the agreement is designed to be cyclical: most people who
occupy these jobs know that work will be waiting for them at some future time,
and reapplying is not usually necessary.
Unemployment related to climate
Jobs that depend on certain
weather conditions are some of the most common candidates for temporary
unemployment. Snow shovel operators, personal ski coaches, lifeguards and beach
controllers are just some examples. Some types of construction work and
exterior painting also fit into this category.
Tourism and travel seasons
A number of jobs related to
tourism are limited to the “high” season of a certain place, which
may subject to seasonal unemployment as well. Many of the most sought-after
destinations in the world have certain times of the year that are much busier
than others. Some of this has to do with the season: summer is almost always a
busy time, but a lot is also related to weather patterns. Regions subject to
rain or suffocating heat are often less popular during these periods. Most
hotels and resorts will keep some employees during these “low”
seasons, but they rarely run at full capacity.
Teachers are one of the biggest
exceptions to the seasonal unemployment rule. Most teachers work only during
the academic year and enjoy summers that are basically free. Teachers are
dismissed before the summer months, however, nor are they considered
“unemployed” during this time.
Other school employees such as school
drivers, cafeteria workers and librarians, to name a few, usually comes within
vs. Latin America and the Caribbean
Latin America and the
Unemployment grew for the third
consecutive year in Latin America and the Caribbean during this 2017 until
reaching 26.4 million people, but the trend will change in 2018, according to
the annual report of the International Labor Organization (ILO).
This increase in the number of
unemployed is mainly caused by the situation in Brazil, which concentrates 40%
of the Latin American labor force and where the unemployment rate rose to 13.1%
in the third quarter of 2017.
The ILO predicted that by 2018
the trend will reverse and unemployment in Latin America will fall for the
first time in three years, since it is projected that the economy of the region
will grow an average of 2%.
Regarding the participation of
women, the ILO valued that women cover more than half of the labor force in
Latin America, with a participation of 50.2%, which includes more than 115
million women. However, he warned that the gender gap is persistent, and the
participation and occupation rates of women are still lower than those of men
by more than 20%.
Likewise, the unemployment rate
for women stood at 10.4% in 2017 at the third quarter and is still 1.4 times
higher than that of men. (International
Labor Organization, 2017)
unemployment rate in the Eurozone closed the year at 8.7%, one point less than
in December 2016 and the lowest level since January 2009.
In the EU, unemployment remains
stable at 7.3 %, in comparison with the data for November and ends with a
decrease of 9 tenths with respect to the previous year.
The statistical office of the
European Union estimates that this 8.7% corresponds to about 18 million
unemployed people (14.1 in the euro countries).
Data for December 2016 show that
unemployment has fallen by more than 2 million people this year in the EU and by
more than 1.5 million in the Eurozone.
Among the member states, the
lowest unemployment rates were registered in the Czech Republic, with 2.3%,
followed by Malta and Germany, with 3.6% unemployment. Spain is positioned as
the second country with more unemployment in Europe, with 16.55%, behind
Greece, which is targeted by 20.7% in October.
Unemployment has fallen in all EU
states, except in Finland. Spain is the fourth country with the highest decline
in unemployment in Europe, by cutting its figure by more than 2 points, from
18.5% to 16.4%. (Eurostat,