About Factors of Unemployment

Many factors affect the employment rate.
Many factors affect the employment rate. (Image: Jupiterimages/Photos.com/Getty Images)

The reasons for why someone is looking for a job may vary: Maybe a college graduate is looking for a job in her field or perhaps a phone receptionist in Phoenix, Arizona got replaced by a low-paid worker in Delhi, India. Each of these reasons for unemployment is rooted in different causes. The factors determining unemployment depend on circumstances such as market forces, industry changes and even the weather.

Cyclical Economy

One factor of unemployment is the condition of the overall economy. When people lose jobs on account of a steep recession, this is categorized as cyclical unemployment. The reasons people get laid off include firms not generating enough business to require the services of all of its employees and companies filing for bankruptcy. Likewise, employment remains strong during economic boom times because of the stimulated commerce activity.

Structural Unemployment

The unemployment rate changes because of how firms choose to allocate their resources. The unemployment rate is particularly sensitive to decisions regarding outsourcing and upgrading technology. When firms choose to outsource jobs, be it in basic accounting or customer service, the unemployment rate rises. Or, when firms purchase a piece of software that can perform the work of five employees, this too affects the unemployment rate. Workers displaced on account of industry changes experience structural unemployment. However, technological advances may carve niches in new industries leading to job creation. Examples are programmers and web app developers: Though the Internet reduces the need for some workers, it creates other positions such as these.

Government Intervention

Government policies affect the rate of unemployment. For instance, to collect the 2010 census, the U.S. hired 1.4 million workers, paying an estimated $1 billion of stimulus in wages. Other times, government involvement is more discreet: Some monetary policies have an indirect effect on the employment rate, such as the Federal Reserve setting interest rates. Raising interest rates and contracting the money supply slows economic growth because fewer dollars chase fewer goods. Gregory Mankiw, author of “Essentials of Economics” explains that slowed output, measured by the country’s GDP, raises the unemployment rate.


Sometimes, positive factors cause the unemployment rate to rise. When workers develop and hone new skills through formal education or work experience, they may leave their current job to pursue one that better fits their new abilities. In this case, the economy operates with greater efficiency when every worker is in a job that best fits their skill set. The changing seasons affect employment in wholly innocuous ways as well. When lettuce crops are in season in Yuma, Arizona, then the unemployment rate drops as workers tend to the fields. However, these workers are not needed when the season fades and consequently, the unemployment rate adjusts higher.

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