Economics Unemployment Questions Medium
Cyclical unemployment and structural unemployment are two distinct types of unemployment that occur in an economy. The main difference between them lies in the underlying causes and the relationship with the overall state of the economy.
Cyclical unemployment refers to the fluctuations in unemployment rates that are directly related to the business cycle or economic fluctuations. It occurs when there is a downturn in the economy, leading to a decrease in aggregate demand and subsequently causing businesses to reduce their workforce. This type of unemployment is temporary in nature and tends to rise during economic recessions or contractions. As the economy recovers and expands, cyclical unemployment decreases.
On the other hand, structural unemployment is caused by long-term changes in the structure of an economy, such as technological advancements, changes in consumer preferences, or shifts in the global market. It occurs when there is a mismatch between the skills and qualifications of the available workforce and the requirements of available jobs. Structural unemployment is not directly related to the business cycle and tends to persist even during periods of economic growth. It requires significant adjustments in the labor market, such as retraining or relocation, to reduce the unemployment rate.
In summary, cyclical unemployment is a result of short-term fluctuations in the business cycle, while structural unemployment is caused by long-term changes in the economy's structure. Cyclical unemployment is temporary and tends to decrease as the economy recovers, while structural unemployment requires structural changes to reduce the unemployment rate.