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.