In our previous posts, we talked about two other kinds of unemployment and what causes them: frictional and structural. In this post, we’re discussing cyclical unemployment and why it happens.
Cyclical unemployment is a type of unemployment that occurs when there is a general weakness in the economy and there are not enough jobs to employ all those who are seeking work.
It is called “cyclical” because it is closely tied to the ups and downs of the business cycle, as demand for goods and services fluctuates over time.
During periods of economic expansion, when demand for goods and services is strong and businesses are expanding, employment and wages tend to rise, and the rate of cyclical unemployment is low.
During periods of economic contraction, such as recessions, demand for goods and services weakens, businesses may cut back on production and employment, and the rate of cyclical unemployment may rise.
Cyclical unemployment is different from structural unemployment, which occurs when there is a mismatch between the skills and qualifications of workers and the requirements of available jobs, and from frictional unemployment, which occurs when workers are temporarily between jobs.
Cyclical unemployment is often considered the most serious form of unemployment, as it reflects a weakness in the economy that can have far-reaching effects on individuals, communities, and the economy as a whole.
Addressing cyclical unemployment typically requires policies aimed at boosting demand for goods and services, such as fiscal stimulus or monetary policy, to encourage business investment and job creation.
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