Lesson 8 of 14 · free to read
Cyclical unemployment, historically affecting less-skilled workers, has expanded to all job categories due to corporate downsizing, while inflation erodes purchasing power and can be measured by the unemployment rate.
In 2017, Ford Motor Company announced it would cut about 10 percent of its global workforce—even as its North American sales were rising. Why would a profitable company lay off thousands of workers? The answer lies in how cyclical unemployment has changed and how inflation quietly erodes what your money can buy.
The idea
Cyclical unemployment now hits all job levels, not just less-skilled workers, while inflation—rising average prices—shrinks purchasing power unless incomes keep pace.
In the past, cyclical unemployment hit mainly less-skilled workers and those in heavy manufacturing, who were typically rehired when economic growth picked up. Since the 1990s, however, global competition has forced many American companies to downsize to survive, and these job cuts have affected workers in every category—including middle management and other salaried positions. Firms keep reevaluating their workforces to stay competitive against Asian, European, and other U.S. firms.
Definition
seasonal unemployment
Unemployment that occurs during specific times of the year in certain industries.
Joblessness that happens at predictable times of year, like holiday retail or summer ski-resort work.
Seasonal unemployment is a separate type from cyclical unemployment. Retail workers hired for the holiday shopping season, lettuce pickers in California, and restaurant employees in ski country during the summer all face seasonal unemployment.
The third macroeconomic goal is to keep overall prices for goods and services fairly steady. The situation in which the average of all prices of goods and services is rising is called inflation.
Vocabulary· 2 terms
Worked example
A concrete example shows how inflation erodes purchasing power:
The price of a basket of groceries rises from $30 to $40.
This is the inflation part—prices go up.
Inflation affects both personal and business decisions. When prices are rising, people tend to spend more—before their purchasing power declines further. Businesses that expect inflation often increase their supplies, and people often speed up planned purchases of cars and major appliances.
There are two types of inflation. Demand-pull inflation occurs when the demand for goods and services is greater than the supply.
Definition
demand-pull inflation
Inflation that occurs when the demand for goods and services is greater than the supply; would-be buyers have more money to spend than the amount needed to buy available goods and services, and their demand tends to pull prices up.
When too much money chases too few goods, prices get pulled upward.
Demand-pull inflation is one of two types of inflation. The other type, cost-push inflation, is covered in the Types of Inflation and Price Indexes unit.
From the early 2000s to April 2017, inflation in the United States was very low, in the 0.1 to 3.8 percent range; for 2016 it was 1.3 percent. For comparison, in the 1980s, the United States had periods of inflation in the 12 to 13 percent range. Some nations have had high double- and even triple-digit inflation in recent years. As of early 2017, the monthly inflation rate in Venezuela was an astounding 741 percent, followed by the African country of South Sudan at 273 percent.
The types of unemployment
Recap
Say each point to yourself, then tap it to check.
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Adapted from Introduction to Business, © 2018 OpenStax, Rice University
Lawrence J. Gitman, Carl McDaniel, Amit Shah, Monique Reece, Linda Koffel, Bethann Talsma, and James C. Hyatt
Licensed under CC BY 4.0. This course is an adaptation, not the original work.
Access for free at openstax.org/details/books/introduction-business