The unemployment rate serves as a key barometer for determining whether the economy is improving or worsening. A number of factors can cause unemployment to rise.
Technological advances may reduce the number of employees needed to perform certain tasks. An innovation for a new computer system in a particular industry that performs a function two or three times faster than humans may result in employers eliminating jobs throughout the industry. If the industry is large enough, the job losses can cause the overall unemployment rate to rise.
An economic downturn can increase in the unemployment rate. During difficult economic times, companies often resort to eliminating jobs to reduce labor costs in an effort to remain profitable, or even remain viable. If a large number of industries are affected by poor economic conditions, thousands of workers may be terminated within a short period of time, causing a spike in the unemployment rate. During the Great Depression, of example, the unemployment rate reached a peak of 25 percent in 1933, according to the Bureau of Labor Statistics.
No Job Creation
The failure or inability of employers to create new jobs, even during stable economic conditions, can lead to a rise in unemployment. According to The Heritage Foundation website, workers who leave their jobs during periods of slow or no job creation have more difficulty finding new employment. If limited job growth lingers for an extended period, the number of unemployed workers gradually increases, resulting in a relatively slow but steady increase in the unemployment rate.
A catastrophic event that affects one or more industries can cause reduced revenues and subsequently lead to unemployment. In the aftermath of the terrorist attacks of Sept. 11, 2001, for instance, thousands of airline workers were laid off, both as a result of the shutdown of airlines immediately after the attacks as well as the decrease in air travel due to passengers being more fearful of flying. Affiliated industries such as aerospace and hospitality also were affected.