Cyclical unemployment arises due to changes in the business cycle; it occurs when the gross domestic product (GDP) falls and the economy enters a phase of contraction. Workers who lose their jobs due to a business cycle downturn can expect to get hired back once the downturn is over. On the other hand, seasonal unemployment occurs in regular patterns, usually on an annual basis, and is caused by predictable changes in demand. For example, lifeguards who are out of work at the end of summer are experiencing seasonal unemployment.

Cyclical unemployment is caused by the lack of demand that is a consequence of business cycle downturns. Businesses facing lower demand have lower revenues and usually have to reduce their costs to prevent taking losses; frequently, this is done by laying off workers. When the economy begins to expand and demand returns to former levels, employers need those workers again. For example, construction workers who lost their jobs in the wake of the 2008 financial crisis and the associated fall in housing demand experienced cyclical unemployment; when housing demand returns to its former levels, demand for those workers will also return.

Unlike cyclical unemployment, seasonal unemployment occurs on a more or less fixed and predictable basis, as it is caused by shifts in demand that depend on the time of year. Seasonal unemployment is actually a type of structural unemployment, as the structure of the economy changes on a seasonal basis and demand for workers changes accordingly. For example, in November and December, there is a surge in demand for holiday ornaments and holiday-related products, and in July and August there is a surge in demand for vacations. The demand for these goods and services creates demand for workers who can supply them.

  1. What is the difference between structural unemployment and cyclical unemployment?

    Learn more about about the differences between structural and cyclical unemployment and when cyclical unemployment becomes ... Read Answer >>
  2. How did the Great Recession affect structural unemployment?

    Structural unemployment is difficult to measure, but there are hints in the data that the spike in unemployment following ... Read Answer >>
  3. What is the difference between frictional unemployment and structural unemployment?

    Learn about structural unemployment and frictional unemployment, the differences between the two and their main characteristics. Read Answer >>
  4. Why does unemployment rise during a recession?

    Learn what a recession is, some attributes of an economy in a recession, and why the unemployment rate tends to rise during ... Read Answer >>
  5. What happens when inflation and unemployment are positively correlated?

    Learn about the historic relationship between inflation and unemployment and the implications that occur when they are positively ... Read Answer >>
Related Articles
  1. Insights

    The Cost of Unemployment to the Economy

    Unemployment carries many costs, both obvious and hidden, for an economy.
  2. Insights

    How The Unemployment Rate Affects Everybody

    Depending on how it's measured, the unemployment rate is open to interpretation. Learn how to find the real rate and how it affects everyone.
  3. Insights

    What is jobless growth?

    What are the effects that a jobless growth economy has on workers and investors alike. Learn about these effects here.
  4. Investing

    How inflation and unemployment are related

    How can inflation affect unemployment, and vice versa? Here, we examine the relationship between wage inflation, consumer prices, and unemployment.
  5. Personal Finance

    Where Unemployment Hits Hardest

    A look at the demographics of unemployment, and what that means for workers around the nation.
  6. Personal Finance

    Jobs with the Lowest Unemployment Rates

    These jobs have low unemployment rates and high demand – both now and likely in the future.
  7. Insights

    The True Unemployment Rate: U6 Vs. U3

    Learn how to distinguish between the U-3 and U-6 unemployment rates, and explore which rate provides a truer picture of unemployment.
  8. Investing

    Did Your State Cut Unemployment Benefits?

    Many of the states now cutting back on unemployment benefits significantly under-funded their coffers prior to the Great Recession.
  9. Investing

    3 Cyclical Industries To Exploit in 2016

    Learn about the three industries at the down end of their business cycles, and discover how these industries may improve in years to come.
  1. Unemployment

    Unemployment is the term for when a person who is actively seeking ...
  2. Structural Unemployment

    Structural unemployment is a longer-lasting form of unemployment ...
  3. Unemployment Insurance

    Unemployment insurance is a benefit for workers who meet eligibility ...
  4. Unemployment Compensation

    Unemployment compensation is paid by the state to unemployed ...
  5. Unemployment Claim

    An unemployment claim is a request made by an individual to the ...
  6. Continuing Claims

    Continuing claims refers to unemployed workers that qualify for ...
Trading Center