Question

Kara, a factory worker, was temporarily laid off until business activity picks up again. Kara Presently is: a: cyclically unemployed b. structurally unemployed c. frictionally unemployed d. not in the labor force

Answer 1

Option A is correct: Kara, a factory worker, who was temporarily laid off until business activity picks up again is Cyclically Unemployed.

Cyclical unemployment is a result of the downturn in business cycle. It is a temporary form of unemployment and is highly dependent on the time duration of contraction faced by an economy due to a recession. The unemployed gets re-hired in the economy, when economy enters into the expansionary phase of the business cycle.

One of the major causes of cyclical unemployment is when an economy experiences any negative demand shocks in the form of, say financial crises, spread of a pandemic, stock market crash, etc. As aggregate demand falls, it leads to a fall in the production activities. During this time period, the demand for labor is low and thus recruitment of new employees is stagnant. Along with this, in order to avoid further losses, the firms may indulge into temporary layoffs till the economy does not recover from the recession. This results in occurrence cyclical unemployment.

Option b is Incorrect: Structural unemployment occurs when the skill sets required to perform a particular job does not match with the skill-set of the unemployed individuals who are actively looking for a job. Technological advancement is one of the main reasons for this. Unlike, cyclical unemployment which gets reduced once recession is over, structural employment keeps up the unemployment rates high even if the economy has recovered from recession.

Option c is incorrect: Frictional unemployment occurs when workers are unemployed in order to find a better job role. It could be both voluntary unemployment and an unemployment caused due to layoffs. Other reasons of being structurally unemployed could be due to change in hometown, or taking a voluntary break, or quitting due to reasons such as sickness.

Option d is incorrect: All the individuals who are either employed or unemployed are a part of labor force. Kara being temporarily unemployed is still very much a part of the labor force.