Cyclical Unemployment 2022-06-27 08:00:00

Cyclical Unemployment

Cyclical unemployment is driven by the business/economic cycle. When an economy goes into recession, businesses lay off employees, increasing unemployment. During expansionary periods, businesses hire people to meet demand, decreasing the unemployment level. As an example, a resort experiences high demand when people are employed, since they have discretionary income. But once the economy begins softening and people start getting laid off, consumers save and avoid unnecessary expenses, such as spending at resorts. This decreases demand at the resort, which cuts its expenses by laying off people, driving up unemployment in the process. Other factors that affect employment are seasonal, structural, frictional, and institutional.

 


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