Cyclical Unemployment: Explained
Business cycles are an unshakable part of world economies. Cyclical unemployment trends repeat over time and affect everyone in the workplace.
What Is Cyclical Unemployment?
Economists classify causes of unemployment into buckets, making it easier to identify business cycles. Cyclical unemployment occurs when business cycles into recession, for example. The reason for unemployment in this classification is demand in the economy cannot meet the labor supply. Furthermore, think of the Great Depression when 1 out of every 4 individuals were willing and able to work but could not find employment. Here are some good current data.
Additionally, when businesses experience the boom phase of the cycle, unemployment is at its lowest. This is because economic output is maximized. Conversely, when economic activity wains, business cycles slow and cyclical unemployment rises. This differs than the other two classes of unemployment- structural and frictional.
Also, structural unemployment occurs when a mismatch exists between worker’s skill and employer need. Disruptive technology causes structural unemployment. For example, the structure of the economy changes. This is typically longer lasting unemployment, since a fundamental shift occurs.
Lastly, frictional unemployment occurs from naturally changing jobs throughout one’s life. Interviews and decisions take time, thus leaving some would-be workers temporarily out of work.
Analyzing Cyclical Unemployment
Cyclical unemployment is a repeating part of the business cycle. For example, when during the 2008 financial crisis, the housing market declined. This reached so far as to put many construction workers out of work.
However, seasonal unemployment is a shorter term, more predictable classification of cyclical unemployment. Furthermore, cyclical unemployment becomes structural unemployment if workers stay out of the workforce long enough to acquire new skills.
Cyclical unemployment is unavoidable, but can be managed. If one believes the economy is likely to turn down, he sharpens his skills or starts interviewing for new positions well in advance. Of course, this is only necessary if one’s career is business cycle sensitive.