Cyclical Unemployment

What is cyclical unemployment?

Cyclical unemployment happens due to changes in the business cycle. It's low during economic growth because more workers are needed for increased demand. But during a recession, cyclical unemployment rises as consumer demand falls and fewer workers are needed. 

Understanding Cyclical Unemployment

Cyclical unemployment fluctuates with the business cycle. It increases when demand drops during a recession leading to worker layoffs. As the economy recovers, businesses slowly rehire but this can delay unemployment rate reduction. It's a temporary type of unemployment. 

Consumer demand falling in the contraction phase causes unemployment to rise. But when the economy expands, demand increases and unemployment falls. A recession is two consecutive quarters of negative growth, and an expansion is two quarters of positive growth. Both affect cyclical unemployment levels.