Unemployment And Cyclical Unemployment

The second type of unemployment is cyclical unemployment. Cyclical unemployment is “the deviation of unemployment from its natural rate” (301). This occurs when the economies output strays from the economies potential Gross Domestic Product. Our economy has the power to create jobs which would increase our economic growth. Usually an economy of which is in growth, has more employment. On the other hand, when looking at cyclical unemployment, an economy of which is in a recession comes in contact with lower levels of employment. When this occurs, due to the economy, there are more laborers without jobs than available jobs. Cyclical unemployment relies very heavily on economic activity. It is called cyclical because when the economy goes back into the growing

Cyclical unemployment is caused from a big loss of demand for products. When consumer demand for a good or service is reduced companies do not make as much money. This means that they have to cut workers in order to keep their profits the same. When this occurs, we know that there is not enough work for workers to do, which results in a large number of workers losing their jobs. Companies do not want to layoff workers but in a time like this they are almost forced to. By laying off an employee, the company loses employees that have the skill set that is required and they lose a lot of experienced help. Cyclical unemployment in some cases becomes a self-fulfilling downward spiral. This is due to the fact that the workers that just lost their jobs do not have as much money to spend which lowers demand and business revenue. This only leads to more layoffs which further hurts everything. With no interference, this downward spiral will keep going bad until supply has gone far enough down to meet the low demand. In most cases this will not occur until the point where the unemployment rate hits 25