Cyclical Unemployment: Definition, Example, Formula, Causes

In every country’s economy, there was always some unemployment. It’s only natural that when some people are out of work, others are hired to fill their place. But what about when the number of unemployed people is higher than usual? And what if it seems to happen in cycles – every few years or so? This is known as Cyclical unemployment.

In this article, we will be talking about everything you need to know about Cyclical Unemployment – its definition, causes, and effects.

What is Cyclical Unemployment

As the name suggests, cyclical unemployment is the result of the cyclical nature of the economy. It occurs when there is a lack of demand for goods and services in the economy, leading to a decrease in production and, as a result, layoffs. Cyclical unemployment is often caused by recessions, but can also be caused by other factors such as natural disasters or disruptions in the supply chain.

Cyclical unemployment is different from frictional and structural unemployment, which are not related to the business cycle. Frictional unemployment occurs when workers are in between jobs, while structural unemployment happens when there is a mismatch between the skills of workers and the needs of employers.

Almost every country experiences some cyclical unemployment, but it is more pronounced in countries with less developed economies. This is because their economies are more likely to be reliant on a single industry or sector, and thus more susceptible to swings in demand.

What causes Cyclical Unemployment

As we mentioned before, cyclical unemployment is usually caused by a recession. A recession is a period of economic decline, characterized by a decrease in GDP, an increase in unemployment, and a decline in business activity. Recessions are often caused by a combination of factors, such as a decrease in consumer spending, an increase in interest rates, or a decrease in government spending.

Other causes of cyclical unemployment can include natural disasters, such as hurricanes or earthquakes, and disruptions in the supply chain, such as an oil price shock.

Examples of Cyclical Unemployment

The most recent example of cyclical unemployment was the Great Recession of 2008-2009. This was caused by several factors, including the housing market crash and the subprime mortgage crisis. The recession led to a decrease in consumer spending and business activity, which resulted in layoffs and an increase in unemployment.

In the United States, the unemployment rate peaked at 9.8% in October 2009, before gradually declining to its current level of 3.6%. In the United Kingdom, the unemployment rate peaked at 8.4% in 2011 and is currently at an 11-year low of 4.8%.

The effects of Cyclical Unemployment

Cyclical unemployment can have several negative effects on the economy. Firstly, it can lead to a decrease in consumer spending, as people will have less money to spend if they are unemployed. This can then lead to a decrease in production and even more layoffs.

Secondly, it can cause an increase in government spending, as the government will often step in with unemployment benefits and other forms of assistance. This can lead to an increase in government debt, which can be a burden on the economy.

Finally, cyclical unemployment can lead to an increase in crime, as people may turn to criminal activity to make ends meet.

Conclusion

So there you have it. In this article, we talked about everything you need to know about Cyclical Unemployment – its definition, causes, effects, and examples. We hope that this article has helped you better understand this topic. Thank you for reading.

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