Impact of Cyclical Unemployment on The Economy

GDP is the Gross Domestic Product. It is the amount of income generated by the state from both domestic, and international sources. GDP determines the growth of the economy of a state. If the GDP is high, it means that a country is doing well in terms of monetary aspects. If the GDP is low, it creates a money shortfall. Low GDP leads to economic fall which in turn affects the social structure too. The most common effect is on the employment ratio. Cyclical unemployment increases with fall of the economy. Let’s think of it as a story. If the GDP is decreasing, it means that people are not buying enough. This creates a shortage of demand for the goods.

The companies are still making it but with no demand. Eventually, they will stop making the product. It will affect the company’s finances as well as the workers present. They will start reducing the labour to manage their sources of producing fewer products. This unrest has a direct effect on the economy. The companies’ less production and more unemployment reduces economic growth of the state. This is the whole concept of cyclical unemployment. There are certain important points of cyclical unemployment that you must know. These are given as follows;

  • The duration of cyclical unemployment may last from months to years. It depends upon the recession period.
  • Cyclic employment has an inverse relation with the GDP of a country.
  • It is a temporary condition.

Causes of Cyclical Unemployment

There are many causes of cyclic unemployment. These are given as follows;

  • International recession causes an increase in cyclic unemployment.
  • The collapse of the global stock exchange causes the fall of every state’s economy.
  • Pandemics and natural emergencies cause a state of disruption of the work structure. It can also increase the demand for work structure.
  • Ups and downs of the business cycles also increase unemployment.

Cyclical unemployment affects the economy of a state in different ways. Some of them are highlighted as follows;

By creating a labour and opportunity gap

The increased number of unemployed people reduces the opportunity to labour ratio. Now more people would be available for one job. It will enhance unhealthy competition for job seekers as well.

Through social unrest

Having more mouths to feed and fewer wages of the job create an imbalance within the society. Impact of cyclic unemployment causes an increasing gap within the social structure. The workers are being laid off because of reduced payback capacity. Many companies adopt the narrowing of staff in case of recessions. The most common example is of the COVID-19 time. This is when most of the companies started to narrow down their staff. The work from home opportunity was only available within some offices. Big industries and independent entrepreneurs suffered the most. The labours working in the industries were the ones laid off from their jobs.

Through decreased GDP

According to a dissertation help firm, an important part of cyclical unemployment is the decrease in Gross Domestic Product. GDP production and the money generated from it is somehow reduced. There are various factors behind the decreased GDP. The enhancement of GDP needs more businesses to start working. It also requires more investment opportunities to cover the loss created by recession periods. GDP decrease is often the first impact of unemployment. Businesses depends on the work of labourers. They use the intellect, and work efforts of the workers to gain benefits. Unemployment reduces the available labour and business investments. It in turn also decreases employment. The cycle continues until the next progressive period.

Through reduction in demand for goods and services

A time comes when the product demand within population groups reduces. Companies start to come up with new marketing, and production techniques. For example, a company is selling 30 million automobiles. They would need a high amount of workers and labourers to manufacture such a big number. Then a new model of another company comes into the market. This causes less interest within the previous companies’ model. The demand for ‘A’ company model reduces. The owner of the company may not have enough generation of money to pay such a big labour force. So the owner will start by reducing the number of staff members. He/she will first start from the labourers. This creates an increase in the unemployment rate.

The social impact of cyclical unemployment

The unemployed workers have families to feed. If they are unable to pay for their expenses, the recession will change into a social one. This social recession will further cause the inability to buy most products. It will create an upsurge in the on-shelf products, and a reduction in their production. It will create a market demand and supply issue as well. This is because product supply is in a high amount, but the consumer requirements are low. These issues will create a further gap in the economic recession.

The solution to cyclical unemployment

Cyclic unemployment and its impact on the economy can be somehow reduced. The experts provide a solution for mortgage rates. It will sell the products at cheap rates, and will increase demand for the product as well. The laid-off workers will someday return to work. Soon the companies will also start making products again because of increased demand.

Fiscal and monetary stimulus can also reduce the impact of the cyclic unemployment factor. It provides companies with a loan to liquefy the flow of products and money. Banks and other financial resources can also provide the loan to the companies. This will enable them to invest. The government sometimes also gets loans to liquefy the money flow. The severe recession of a state’s economy can somehow be avoided in this manner.


cyclical unemployment has a massive impact on the state’s economy. It changes the factors that affect flow of money, and the upsurge of economy. The GDP, as well as consumer demand and supply of the product affect the economy. All of this is the result of cyclic unemployment. The GDP creates a gap of workforce and job opportunities too. This cycle of the ups and downs for businesses continues until someone adapts a solution. The solution of financial loans and mortgage rates have good use in the economy. They can be utilised to manage effectively the case of cyclic unemployment.

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