Unemployment has many types, causes and specific characteristics. While the pandemic and its aftermath caused significant economic shifts, unemployment has always ebbed and flowed for a variety of reasons.
With the word “recession” in the air, you may wonder where cyclical unemployment falls on the spectrum and what it entails.
Read on for more about:
- Definition and cyclical unemployment examples
- Causes of cyclical unemployment
- Ways to prevent cyclical unemployment
Contents
- 1 What is cyclical unemployment?
- 2 The stages of cyclical unemployment
- 3 10 examples of cyclical unemployment throughout history
- 3.1 1. End of WWII: February 1945 to October 1945
- 3.2 2. Post-war consumer spending slows: November 1948 to October 1949
- 3.3 4. Asian Flu Pandemic: August 1957 to April 1958
- 3.4 5. Foreign Cars and Recession: April 1960 to February 1961
- 3.5 6. The Oil Embargo: November 1973 to March 1975
- 3.6 7. The double-dip recession: July 1981 to November 1982
- 3.7 8. 9/11 and the dotcom crash: March 2001 to November 2001
- 3.8 9. The Great Recession: December 2007 to June 2009
- 3.9 10. The COVID-19 Recession: February 2020 to April 2020
- 4 What cyclical unemployment means to you
What is cyclical unemployment?
Periodic unemployment is the percentage of people out of work during an economic cycle. Economic activity generally follows fluctuations in gross domestic product (GDP). When GDP falls significantly, layoffs and sometimes even a recession can result.
As economists study and forecast trends toward cyclical unemployment, the government can use its policymakers to create new fiscal and monetary policies to promote a more robust workforce and an overall economic upswing.
The stages of cyclical unemployment
Because cyclical unemployment fluctuates and follows a pattern, it appears relatively similar each time it occurs. Read below for the stages of cyclical unemployment.
1. A recession begins
Recessions can be caused by many things – some from an economic blowout, such as the housing market crash during the Great Recession, and others are a slower burn of the business cycle.
Either way, consumer demand has fallen, making jobs scarcer because there are more people in the labor market than there is demand for goods and services.
2. Laid off appearance
When demand falls, there will be less profit and a surplus of workers. As a result, companies have to lay off employees. This could lead to more people receiving unemployment benefits, putting even more pressure on the economy.
3. The recession is progressing
As the economic downturn continues, cyclical unemployment rates continue to fluctuate. During this time, economists analyze macroeconomics and microeconomics and their aggregate demand variables to predict trends and help the government design policies that can stimulate the economy.
Macro economy examines general factors such as:
- National markets
- Employment opportunities
- Gross national product
- Inflation
Microeconomics explores little-picture factors such as:
- individual markets
- Supply and demand
- Goods and services
4. An economic upswing begins
The advantage of a recession is that the economy operates on a cycle, just like cyclical unemployment. This means that the economic contraction could eventually end, the economy could rebound and the quest for full employment could continue.
During this period, the business cycle begins to self-correct, consumer demand may increase, or the Federal Reserve may provide incentives to stimulate the economy.
5. Employees go back to work
In the final phase of the cycle, people begin to return to the labor market. Ideally, this could be the start of lower unemployment rates. However, other forms of long-term unemployment may arise as a result of a changing economy and its consequences.
Cyclical unemployment versus other types of unemployment
While cyclical unemployment is a temporary condition based on the economy, other types of unemployment have different causes and characteristics. Look at one some other forms of unemployment below that, in addition to cyclical unemployment, unemployment can also happen.
Structural unemployment
Structural unemployment arises when the economy changes and the labor market does not match the skills of workers. This is usually caused by changes in government policies or technological advancements that replace human skills.
Frictional unemployment
Frictional unemployment occurs when an employee voluntarily leaves a position and starts looking for their next venture.
This can also refer to the gap recent graduates may experience before landing their first job. Since workers are financially stable enough to support themselves during this time of purposeful unemployment, this often indicates a healthy economy.
Natural unemployment
Natural unemployment is an indicator that inflation is coming. Increases in natural unemployment are often the result of a combination of structural and frictional unemployment, which can increase the cost of goods and services.
Related: Everything we know about unemployment benefits during the coronavirus Pandemic
10 examples of cyclical unemployment throughout history
Cyclical unemployment is directly related to the cycles of an economic recession. Tracking recessions throughout history may point to the cyclical unemployment of the US economy. See below for examples of each recession and the corresponding unemployment cycles since World War II.
1. End of WWII: February 1945 to October 1945
The war resulted in significant economic growth for the United States, with a high demand for jobs to meet the needs of the military. However, when the war ended and government spending dried up, the job market collapsed and the economy followed suit.
Fortunately, this recession lasted less than a year as the manufacturing industry was able to adapt and create non-war-related new jobs, especially for construction workers.
2. Post-war consumer spending slows: November 1948 to October 1949
During the war, there were government-imposed rations and restrictions. But when those were lifted, American citizens went wild with their spending. However, after the spending craze slowed and soldiers struggled to find their new place in the workforce, the economy struggled to balance.
4. Asian Flu Pandemic: August 1957 to April 1958
In 1957, a pandemic in Hong Kong spread to India, Europe and the United States. It killed more than a million people and crushed US exports by more than $4 billion, sparking another recession. During this time, unemployment rose to 6.2 percent.
Related: What does high unemployment have to do with your investments?
5. Foreign Cars and Recession: April 1960 to February 1961
In the late 1950s, Americans took a growing interest in foreign cars, which was incredibly detrimental to the American auto industry. This new fascination, combined with rising interest rates designated by the Federal Reserve, caused a recession.
Related: 72% of economists Predict a recession next year – if we’re not already in one
6. The Oil Embargo: November 1973 to March 1975
In 1973, the Organization of the Petroleum Exporting Countries imposed an oil embargo that caused gas prices to skyrocket. This was the kick-off for a retrenchment by Americans to save money. This, combined with inflation, wage freezes and layoffs, resulted in a stagnant economy and a rise in unemployment to 8.8 percent.
7. The double-dip recession: July 1981 to November 1982
There was a very short-term recession due to an energy crisis just before 1980, but it was much more damaging. This recession was caused by inconsistent and low oil exports, which drove up prices.
During this time, interest rates were not raised enough to slow inflation until the Federal Reserve raised interest rates to 21.5 percent. The spike created a ripple effect, driving statistics toward a labor force with more than 10 percent unemployed.
8. 9/11 and the dotcom crash: March 2001 to November 2001
In the late 1990s, the Internet exploded and many investors poured everything into their new dotcom ventures. This inflated unincorporated companies to unsustainable levels and the bubble burst in 2001.
The dotcom crash, combined with 9/11 and several corporate scandals, caused the first recession of the new millennium.
9. The Great Recession: December 2007 to June 2009
The Great Recession is the biggest financial meltdown since the Great Depression. The heavy investment caused financial institutions to enter the mortgage market, particularly mortgage-backed securities.
However, homeowners lost their homes and investment banks collapsed when people couldn’t pay off their loans. During this time, the stock market crashed, people lost their pension funds, and 10 percent of Americans were unemployed. The government had to pump $1.5 trillion in stimulus money into the economy to rectify this mess.
10. The COVID-19 Recession: February 2020 to April 2020
When the COVID-19 pandemic hit, the world faced a financial crisis. With lockdowns, job losses and a massive drop in consumer activity, the economy lost 20.5 million jobs and unemployment rose to 14.7 percent.
The government quickly stepped in with stimulus money, approving $6 trillion in aid.
Related: We may be heading for a recession, but a “greater catastrophe” may be on the way
What cyclical unemployment means to you
Cyclical unemployment is the percentage of people out of work during an economic cycle that generally predicts a recession. Throughout history, there have been multiple recessions that have caused unemployment rates to fluctuate.
When there is cyclical unemployment, the government often uses a stimulus package to put the economy back into a more positive cycle.
Now that you’ve seen causes and trends throughout history, you may be able to recognize signs of cyclical unemployment in today’s economy.
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Janice has been with businesskinda for 5 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider businesskinda team, Janice seeks to understand an audience before creating memorable, persuasive copy.