Cyclical unemployment

Cyclical unemployment is a temporary type unemployment that occurs due shortage in aggregate demand, during depression or recession phase of a trade cycle.

Cyclical unemployment cannot be explained with the help of personal examples. Rather the examples here refer to huge events which are known to pretty much everybody.

•  massive unemployment following economic downfall during covid-19 pandemic

• The Great Depression in US is one of the biggest examples of cyclical unemployment. Estimates of the magnitude of the problem vary. However, some estimates have pegged the unemployment rate to be as high as 40%. Considering the fact that official figures tend to understate the true impact of the problem, this situation was indeed alarming. Also, it must be noted that the Great Depression in 1929 happened immediately after a period of immense economic growth i.e. the roaring 1920’s

• The more recent subprime mortgage crisis is also an apt example of cyclical unemployment. In US during the early 2000’s the demand for housing exploded as a result of low interest rates and cheap availability of money. As a result, houses were being constructed at a breakneck speed providing employment to a lot of people in the process. When the housing market collapsed in 2008, it had ripple effects causing losses, foreclosures and unemployment at a catastrophic scale.