Definition and Reasons for Cyclical Unemployment

Cyclical unemployment is a form of unemployment brought about by negative economic growth. This is usually observed whenever a country suffers from a recession in which it achieves low levels of economic output in two or more consecutive quarters. During a recession, cyclical unemployment rises severely. The logic behind this is that lesser people are buying the goods which push firms to produce less and as a consequence, create lower demand for workers. In a simpler sense, a higher number of workers looking for jobs are detected than there are jobs available for them.

It is called cyclical because it is basically a result of fluctuations of the business cycles. Changes in the supply and demand of goods and services can directly affect the employment conditions of a country. When fluctuations in the business cycles cause disturbing effects to several business sectors and their employees, an increase in unemployment is most likely to occur.

Cyclical unemployment is known to be a form of unemployment resulting from a general downturn in business activity. When recessions occur for example, it is an indication that more people are spending less on the available products and other goods produced by entrepreneurs. As more goods are not bought by consumers, manufacturers will then be forced to produce less in order not to suffer the consequences of slow earnings. An additional measure to save further on costs will be to downsize on employees.

The following are the most common reasons for cyclical unemployment:

1. The country is under recession, where the growth domestic product is dwindling.
2. Consumer demands for goods and services shrink as a result of declining economy.
3. Businesses begin employee layoffs as a measure to cut down on costs in order to become profitable despite slow economic growth.
4. Businesses opt to postpone new hires until there is a general economic recovery thereby increasing the number of unemployed.