Cyclical unemployment is the type of unemployment that occurs due to fluctuations in the business cycle or economic cycle. It arises when there is a downturn or contraction in the economy, leading to a decrease in demand for goods and services, which subsequently reduces the demand for labor. As a result, companies lay off workers to cut costs, increasing unemployment during these periods
. This form of unemployment is closely tied to the overall economic activity measured by GDP. When economic output falls, such as during a recession, cyclical unemployment rises because businesses reduce production and need fewer workers. Conversely, during economic expansions or growth phases, demand for labor increases, and cyclical unemployment falls
. Cyclical unemployment is considered temporary and varies with the severity and length of the economic downturn. It is distinct from structural unemployment, which is caused by mismatches in skills or location, and frictional unemployment, which results from the time it takes workers to find new jobs
. In summary, cyclical unemployment reflects the impact of economic recessions and expansions on the labor market, rising in economic downturns and falling when the economy recovers
