cyclical unemployment

Examples of cyclical unemployment in the following topics:

• Types of Unemployment: Frictional, Structural, Cyclical

  • Structural unemployment is one of the main types of unemployment within an economic system.
  • It is often impacted by persistent cyclical unemployment.
  • Frictional unemployment is another type of unemployment within an economy.
  • Cyclical unemployment is a type of unemployment that occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work.
  • With cyclical unemployment the number of unemployed workers is greater that the number of job vacancies.

• Reasons for Unemployment

  • There are three reasons for unemployment which are categorizes as frictional, structural, and cyclical unemployment.
  • There are four types of unemployment.
  • There is always at least some frictional unemployment in an economy, so the level of involuntary unemployment is properly the unemployment rate minus the rate of frictional unemployment.
  • During periods in the business cycle when the economy is producing below its long-run, optimum level, firms demand fewer workers and the result is cyclical unemployment.
  • The short-term fluctuations in the graph are the result of cyclical unemployment that changes when economic activity is above or below its long-term potential.

• Defining Full Employment

  • Full employment is defined as an acceptable level of unemployment somewhere above 0%; there is no cyclical or deficient-demand unemployment.
  • In macroeconomics, full employment is the level of employment rates where there is no cyclical or deficient-demand unemployment.
  • Ideal unemployment excludes types of unemployment where labor-market inefficiency is reflected.
  • The full employment unemployment rate is also referred to as "natural" unemployment.
  • Full employment is defined as "ideal" unemployment.

• Measuring the Unemployment Rate

  • Cyclical unemployment: occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work.
  • The unemployment rate is measured using two different labor force surveys.
  • The survey measures the unemployment rate based on the ILO definition.
  • The unemployment rate is updated on a monthly basis.
  • They calculate different aspects of unemployment.

• Typical Lengths of Unemployment

  • Long-term unemployment lasts 27 or more weeks.
  • Generally, unemployment is high during recessions.
  • Cyclical: occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work.
  • Short-term unemployment is considered any unemployment period that lasts less than 27 weeks.
  • Long-term unemployment is classified as unemployment that lasts for 27 weeks or longer.

• Defining Unemployment

  • Cyclical: occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work.
  • It differs from frictional unemployment because it lasts longer.
  • Hidden: the unemployment of potential workers that is not taken into account in official unemployment statistics because of how the data is collected.
  • The final measurement is called the rate of unemployment .
  • The effects of unemployment can be broken down into three types:

• Effect of a Government Budget Deficit on Investment and Equilibrium

  • A cyclical deficit is a deficit incurred due to the ups and downs of a business cycle.
  • At the lowest point in the business cycle, there is a high level of unemployment.
  • Conversely, at the peak of the cycle, unemployment is low, increasing tax revenue and decreasing spending, which leads to a budget surplus.
  • The additional borrowing required at the low point of the cycle is the cyclical deficit.
  • By definition, the cyclical deficit will be entirely repaid by a cyclical surplus at the peak of the cycle.

• Keynesian Theory

  • This wasted capital can result in market losses, unemployment, and market inefficiency (this was called 'general glut' in the classical model, when aggregate demand does not meet supply).
  • Unemployment:Under the classical model, unemployment is often attributed to high and rigid real wages.
  • Fiscal Policy:The key concept in fiscal policy for Keynes is 'counter-cyclical' fiscal policy, which is the expectation that governments can reduce the negative effects of the natural business cycle.
  • Consider the unemployment and excessive savings problems, and how they stand to lead to spiraling decline.

• Shortcomings of the Measurement

  • Unemployment is measured in order to determine the unemployment rate.
  • In order to find the rate of unemployment, four methods are used:
  • Calculates unemployment by different categories such as race and gender.
  • This method is the least effective for measuring unemployment.
  • The unemployment rate is the percentage of unemployment calculated by dividing the number of unemployed individuals by the number of individuals currently employed in the labor force.

• The Short-Run Phillips Curve

  • The Phillips curve depicts the relationship between inflation and unemployment rates.
  • As unemployment rates increase, inflation decreases; as unemployment rates decrease, inflation increases.
  • When the unemployment rate is 2%, the corresponding inflation rate is 10%.
  • As unemployment decreases to 1%, the inflation rate increases to 15%.
  • As output increases, unemployment decreases.