Cyclical Unemployment

A factor of overall unemployment that relates to the cyclical trends in growth and production that occur within the business cycle. When business cycles are at their peak, cyclical unemployment will be low because total economic output is being maximized. When economic output falls, as measured by the gross domestic product (GDP), the business cycle is low and cyclical unemployment will rise.

Economists describe cyclical unemployment as the result of businesses not having enough demand for labor to employ all those who are looking for work. The lack of employer demand comes from a lack of spending and consumption in the overall economy.

Cyclical unemployment is one of five classes of unemployment as recognized by economists. Other types include structural, frictional, classical and Marxian. In most cases, several types of unemployment exist at the same time. With the exception of cyclical unemployment, the other classes can be occurring even at the peak ranges of business cycles, when the economy is said to be at or near “full employment”.