Cyclical unemployment
Cyclical unemployment arises when weak aggregate demand reduces the demand for labour across the economic cycle. Businesses may cut output and jobs when sales fall, even though workers’ skills remain usable. Recovery can increase labour demand, but the result depends on capacity, business expectations and matching. Distinguish demand weakness from structural mismatches and predictable seasonal variation.
Worked example
During a broad downturn, manufacturers receive fewer orders and reduce shifts and staffing. Some affected workers could perform the same jobs if demand recovered; this illustrates cyclical rather than necessarily structural unemployment.
Common mistake
Do not call all unemployment during a recession cyclical. Skill mismatch, search time and seasonal patterns can exist at the same time.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | BT | Supporting | September 2026–June 2027 |
| FIA | FBT | Supporting | September 2026–June 2027 |