Introduction to Cyclical Unemployment
Cyclical unemployment refers to the unemployment which is caused by the changes in business cycles, that is economic upturn or downturn. Cyclical unemployment is a component of overall unemployment and is affected by the economic recession or expansion. Cyclical unemployment is highest during an economic recession and is lowest during an economic expansion.
Cyclical unemployment is one of the components that determine the overall unemployment in an economy along with other components like structural unemployment, seasonal unemployment, frictional and institutional unemployment.
It is very important to moderate the cyclical unemployment during an economic recession to maintain the well-being of the people and to stimulate the growth of the economy in the future. It is also one of the major factors of motivation in the study of the economy.
What is Cyclical Unemployment?
Cyclical unemployment is the type of unemployment that relates to the cyclic trends in the economy and the business industry. The ups and downs in the growth and production that take place in the business industry affect the cyclical unemployment.
When there is a rise in cyclical unemployment, it indicates that the economy is going towards recession which means that the economic growth is slowing down which is not good for the economy. This is worrying for the government and it indicates that the government needs to carry various measures and form different policies to support the economy and stimulate its growth.
Cyclical unemployment can also be described as the business industry not having much demand in regards to their products. This decrease in demand eventually leads to a decrease in supply to compensate for the lack in demand. The lack of supply means that there is less requirement of employees to fulfill the low production, due to which many companies and businesses decide to let go of the employees that are no longer needed or those who no longer have any active role to play in the company or business. This eventually leads to unemployment which we call cyclical unemployment.
The economic activity of a country often goes up and down and cannot be classified as linear. This cyclic nature of the economy is what determines the cyclical unemployment in the country. The cyclical unemployment will be at its peak when the economy is slowing down which happens at the time of recession and it will be low when the economy starts recovering and growing which happens at the time of economic expansion.
