In 2013, Caterpillar laid off employees. The employees who were laid off due to the business cycle would be considered Group of answer choices
A seasonally unemployed.
B cyclically unemployed.
C frictionally unemployed.
D structurally unemployed.
The correct answer and explanation is:
The correct answer is: B cyclically unemployed.
Explanation:
Unemployment is classified into different types based on its cause. Understanding these types helps in analyzing the health of the economy and designing appropriate policies.
- Cyclically unemployed
This type of unemployment occurs due to fluctuations in the business cycle—periods of economic expansion and contraction. When the economy slows down or goes into a recession, demand for goods and services decreases. Consequently, companies reduce production and lay off workers because there is less need for labor. When the economy recovers, these jobs often come back. Employees laid off by Caterpillar in 2013 due to downturns in economic activity represent this group. Their unemployment is directly linked to the cycle of economic activity, hence the term “cyclical unemployment.” - Seasonally unemployed
This occurs when workers lose their jobs during off-seasons in industries that are dependent on specific times of the year, such as agriculture, tourism, or holiday retail. This type is predictable and recurs every year. - Frictionally unemployed
This is short-term unemployment that happens when workers are transitioning between jobs, entering the workforce for the first time, or voluntarily leaving a job to find a better one. It reflects the normal job search process and is not related to the economy’s health. - Structurally unemployed
Structural unemployment arises when there is a mismatch between workers’ skills and the skills demanded by employers, often caused by technological changes, globalization, or long-term shifts in the economy. This type tends to be more persistent and requires retraining or relocation.
Why Caterpillar layoffs in 2013 were cyclical:
- Caterpillar is heavily influenced by global economic conditions because it produces heavy machinery for construction, mining, and energy sectors.
- In 2013, if Caterpillar laid off employees due to reduced demand caused by an economic slowdown, this reflects cyclical unemployment.
- These layoffs happen because the company’s revenues drop when economic activity contracts, not due to permanent changes in technology or industry structure.
- When the economy improves, demand for Caterpillar’s products is expected to rise, leading to rehiring.
In summary, layoffs due to downturns in the business cycle are classic examples of cyclical unemployment—temporary and tied directly to the ups and downs of the economy.