What is Cyclical Unemployment?
How does Cyclical Unemployment work?
This type of unemployment increases during a recession and decreases during an expansion. Businesses are unwilling to spend money on wages when they believe consumers are not buying their products.
For example, an auto worker may be laid off during a recession, when people are buying fewer cars. When people buy fewer cars, the auto makers don't need as many employees to meet the consumer demand. So as the demand for cars decreases, so does the demand for auto workers.