Cyclical unemployment and seasonal unemployment
| Cyclical unemployment and seasonal unemployment |
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Cyclical unemployment is a type of unemployment caused by macroeconomic factors, such as a recession or depression, which result in a general decline in economic activity and job creation. This type of unemployment is often characterized by a lack of demand for goods and services, as fewer people have money to buy them. Seasonal unemployment is a type of unemployment that occurs when there is an expected increase or decrease in the demand for certain kinds of labor. This type of unemployment often occurs in industries that are particularly sensitive to changes in the weather or the time of year, such as the tourism and hospitality industry, or the retail industry.
Example of cyclical unemployment and seasonal unemployment
Cyclical unemployment:
- During the 2008 financial crisis, millions of people around the world lost their jobs due to a dramatic decrease in consumer demand. This was an example of cyclical unemployment, as it was caused by a macroeconomic event that resulted in a general decline in economic activity and job creation.
Seasonal unemployment:
- During the winter months, ski resorts in the United States typically experience a large increase in demand for their services. This increased demand results in increased hiring at the resorts, as well as increased wages for employees. However, as the winter months come to an end, the demand for services drops, resulting in decreased hiring and wages. This is an example of seasonal unemployment, as it is caused by a predictable change in demand for certain types of labor.
- Another example of seasonal unemployment is in the retail industry. During the holiday season, many retailers experience an increase in demand for their goods and services, resulting in an increase in hiring and wages. Conversely, as the holiday season comes to an end, the demand for retail goods and services drops, resulting in decreased hiring and wages.
Types of cyclical unemployment and seasonal unemployment
Cyclical unemployment and seasonal unemployment are two types of unemployment caused by macroeconomic and environmental factors, respectively. Cyclical unemployment occurs when there is a general decline in economic activity and job creation due to macroeconomic factors, such as a recession or depression. Seasonal unemployment, on the other hand, occurs when there is an expected increase or decrease in the demand for certain kinds of labor due to environmental factors, such as changes in the weather or the time of year.
Types of cyclical unemployment include:
- Frictional unemployment, which is caused by the time it takes for individuals to find new jobs after leaving their previous ones.
- Structural unemployment, which is caused by a mismatch between the skills of unemployed individuals and the needs of employers.
- Demand-deficient unemployment, which is caused by a lack of demand for goods and services.
Types of seasonal unemployment include:
- Seasonal unemployment in the tourism and hospitality industry, which can be caused by changes in the weather or the time of year.
- Seasonal unemployment in the retail industry, which can be caused by changes in the season or holiday shopping.
- Seasonal unemployment in agriculture, which is caused by seasonal changes in crop planting and harvesting.
Advantages of cyclical unemployment and seasonal unemployment
Cyclical unemployment and seasonal unemployment both have their advantages.
- Cyclical unemployment helps to reduce inflationary pressures during an economic downturn, as fewer workers with higher wages bid up the prices of goods and services.
- Seasonal unemployment can provide businesses the flexibility to adjust their workforce to the changing needs of the market. This helps to reduce the risk of overstaffing and allows companies to better manage their labor costs.
- Cyclical unemployment also helps to ensure that resources are used efficiently and that businesses remain competitive in times of economic downturn.
- Seasonal unemployment can also provide workers with a welcome break from their full-time employment during the off-season, allowing them to relax and recharge for the next period of work.
Limitations of cyclical unemployment and seasonal unemployment
Cyclical unemployment and seasonal unemployment are two types of unemployment that can have substantial impacts on the labor market. However, there are a few limitations to both forms of unemployment. These limitations include:
- Reduced availability of jobs: During times of high cyclical and/or seasonal unemployment, the number of jobs available can be significantly reduced. This can make it difficult for individuals to find steady work.
- Unpredictable fluctuations: Cyclical and seasonal unemployment can be difficult to predict, making it difficult for businesses to plan for the future.
- Low wages: During periods of cyclical and seasonal unemployment, wages can be lower than usual due to the increased competition for jobs.
- Long-term impacts: Cyclical and seasonal unemployment can have long-term impacts on the labor market, as businesses may be less likely to hire workers during these periods. This can lead to a decrease in economic growth.
Suggested literature
- Diamond, P. (2013). Cyclical unemployment, structural unemployment. IMF Economic Review, 61(3), 410-455.
- Elsby, M. W. L., Michaels, R., & Solon, G. (2009). The ins and outs of cyclical unemployment. American Economic Journal: Macroeconomics, 1(1), 84-110.
- Abraham, K. G., & Katz, L. F. (1986). Cyclical unemployment: sectoral shifts or aggregate disturbances?. Journal of political Economy, 94(3, Part 1), 507-522.
