Cyclical Unemployment

By: EconomyWatch   Date: 14 October 2010

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In this article we have discussed the basic concepts of cyclical unemployment and its linkage with the business cycle. We have analyzed the cyclical unemployment that was witnessed in US. Next we have seen the steps that are taken by the government to counter the problem of cyclical unemployment.

Cyclical unemployment goes hand in hand with the business cycle or the ace of the economy. In the peak stage of the business cycle i.e. a very high GDP is matched with low unemployment rate. Again when the economy is passing through a recession the unemployment rate is very high. Hence cyclical unemployment may be alternatively defined as the negative correlation that exists with Gross Domestic Product.

When the economy is in a recession, the aggregate demand for goods and services is low. Consumer expenditure is also less. Production is lowered to match with the low aggregate demand. Lowering production entails downsizing the work force.
Cyclical Unemployment And The Business Cycle

As mentioned earlier the cyclical unemployment is linked with the business cycle. The business cycle, basically measures the change of the Gross Domestic Product with time. The business cycle is composed of four period of time, but the length of time cannot be predetermined. The business cycle begins with the economic slowdown and soon it is pushed into a trough where the economy hits is lowest point. Here the unemployment rate is the maximum. In the expansionary phase of the business cycle, a number of factors work in unison to boost the economy. The economy is on its path of recovery. Production is taking place at full swing and more workers are unemployed to meet the high production needs and hence unemployment is the minimum at this point.

Most commonly, a business cycle lasts for a very short time period, but there may be long-term factors that may trigger the economy into a depression, which is the magnified form of a recession. In this case the economy may be caught up in ling term unemployment.


Cyclical Unemployment In US

Cyclical unemployment can be witnessed during the Great Depression in US. The data collected from the National Bureau of Economic Research show that unemployment rose to 25% from zero in 1933. The unemployment rate shot again to 20% in 1938.

A different pattern of unemployment is observed in the 1990s from the data collected from the Economic Report of the President. During this period the unemployment rate ranges from 3% to 10%. It is observed that unemployment is high in times of the recession in 1948,1958,1961,1969,1979,1981 and 1990.

Government Policies To Counter Cyclical Unemployment

Necessary actions are taken by the government to uplift the economy from depression. Lowering interest rate and taxes increases consumer expenditure. Employment creation programs are also taken up. Financial assistance is provided to the unemployed in the form of unemployment benefits. The statistics that are published on unemployment Insurance, on a regular basis, show that claims sustain for a longer time frame in times of recession. For this reason the government has resorted to the extended benefit program at the time of recession.

The jobs created by the government during the Great Depression in US did improve the unemployment problem prevailing in US then.


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