Why is cyclical unemployment more worrisome than frictional or structural?

Expert Solution

Frictional Unemployment is the time period during a person leaving a job and joining a new job or a young person going to work for the first time. So it is for short time period.

Structueal Unemployment is the mismatch between the type of skill the workers possess and the types of skill yhe industry need so these people remain unemployed. If these persons takes some course of training they may get jobs and they will no longer be unemployed.

Cyclical unemployment is the Unemployment caused by the business cycles in the economy. It is occurs as a result of the contraction phase of the business cycle. This phase is characterized by a dramatic decrease in the aggregate demand for goods and services, which in turn forces businesses to lay off employees in order to minimize costs. This unemployment is more worrysome than other types of unemployment because of following reasons.

Cyclical unemployment can also be referred to as demand-deficient unemployment, since it is caused by a deficiency in demand or purchasing power. It is a major cause of high unemployment. Since it is caused by a decrease in general demand, it affects all industries simultaneously.
Cyclical unemployment can lead to a downward spiral of unemployment. Workers who have been laid off due to decreased demand now have less disposable income to spend on things they need, which lowers demand and business revenue even further, resulting in more workers being laid off. If no intervention is made, this downward spiral continues until the supply of labor decreases enough to match the decreased demand. This can lead to very high levels of unemployment.
Cyclical unemployment can also lead to structural unemployment. In a bid to minimize costs and maintain profit margins, businesses which have already laid off workers due to an economic downtown might implement some changes in their production process. Once the economy re-enters the expansion phase, workers who had been laid off might need new skills in order to be rehired.

Rahul Sunny answered 2 years ago

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