Cyclical unemployment

economic-dictionary

Cyclical unemployment is unemployment that is caused by fluctuations in a country's economic activity.

Cyclical unemployment depends on the business cycle that a country's economy goes through at any given time. In stages of recession or crisis, cyclical unemployment increases, while in phases of expansion it decreases.

In economic terms, cyclical unemployment is said to be a fluctuation of the unemployment rate with respect to its natural rate, that is, the unemployment rate that cannot be reduced and is considered normal in an economy.

Causes of cyclical unemployment

Cyclical unemployment increases when there is a drop in the economic activity of a country. In times when companies reduce their sales and investment, the demand for work is also reduced, so some people are fired from their jobs, while others cannot find a new position.

This type of unemployment is expected to decline as economic activity begins to pick up.

Next, we see two graphs that explain the behavior of cyclical unemployment. In the first graph we see that companies see the demand for their goods or services reduced, so the quantity demanded falls and the equilibrium price decreases. As a consequence of the above, in the labor market (graph on the right), the demand for workers is also reduced, as is the equilibrium wage.

Measures against cyclical unemployment

The measures that governments can take to reduce or address cyclical unemployment are as follows:

  • Encourage economic activity: Through different types of incentives such as: greater access to credit for the creation of companies, subsidies or facilities for hiring personnel, reduction of bureaucratic barriers, attraction of foreign investment, etc.
  • Unemployment insurance: Give unemployed people a monthly amount of money that allows them to meet their basic needs until they can find a new job.
  • Training: Facilitate the training of unemployed people through scholarships, subsidies or other facilities. In this way, the unemployed can improve their chances of finding a job in the future.
Structural unemployment

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