What is Cyclical Unemployment?
How does Cyclical Unemployment work?
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.
As the economy strengthens, and consumers start to spend more money on goods (like cars), the unemployed auto worker will probably be rehired.
Why does Cyclical Unemployment matter?
Cyclical employment cannot be a factor during periods of full employment. Structural unemployment and frictional unemployment still occur when the economy has reached its natural rate of unemployment.