Cyclical Unemployment
Candlefocus EditorThe business cycle is an unavoidable phase of the economy. It is characterized by periods of growth and contraction, along with their associated upturns and downturns. During an economic contraction (or recession), GDP will fall and the unemployment rate will increase. As GDP continues to fall, levels of investment, consumption and aggregate demand for goods and services will decrease. These economic forces in turn lower the level of jobs available. Therefore, when output contracts during a recession, so does employment and the number of people being hired for jobs, leading to cyclical unemployment.
There are a number of ways in which policymakers can try to reduce the effects of cyclical unemployment. These may include government-funded job training programs, direct job creation initiatives, and increasing demand and government spending to stimulate the economy. Fiscal policy (such as changes to taxation and government spending) and monetary policy (changes to the money supply and interest rates) can also be used to try to reduce the magnitude and duration of economic downturns. However, it is worth noting that cyclical unemployment is very difficult to avoid, and that economic downturns still occur despite these measures.
Overall, cyclical unemployment is an important focus of economic policy, as it is linked to the business cycle and the overall health of the economy. It is the result of reduced economic activity and decreased levels of job creation. It can be addressed by government policy in order to try and reduce its severity, but ultimately there is no guaranteed way to avoid the cyclical nature of downturns and how they affect unemployment.