Management Notes

Reference Notes for Management

Cyclical Unemployment – Concept, Methods, Causes and Examples | Macroeconomics

Cyclical Unemployment

Cyclical Unemployment

Cyclical unemployment occurs when labor forces are reduced due to business cycles or fluctuations in the economy, such as recessions (periods of economic decline). The rate of cyclical unemployment is low when the economy is at its peak or experiencing continuous growth. During this period, sales and income increase, so more people are needed to meet the demand.

The main reason for high unemployment rates is cyclical unemployment. This is caused by a downturn in the business cycle. It occurs as part of the natural rise and fall of economic growth over time. Unemployment caused by cyclical economic contractions is temporary and determined by the length of the recession. Recessions usually last around 18 months. The unemployed tend to be rehired when the business cycle enters an expansionary phase (rising toward the peak of the wave).

In contrast, during a recession, cyclical or involuntary unemployment increases due to a decline in demand for goods and services. This means that production decreases, resulting in fewer workers needed, leading to layoffs. In the labor market, there are more unemployed workers than job openings.

Read more