What typically causes cyclical unemployment?

Cyclical unemployment is primarily linked to the fluctuations in the economy, particularly during periods of economic downturns or recessions. During these times, businesses often experience decreased demand for their goods and services, which can lead to layoffs or reduced hiring. As consumer spending declines and businesses contract, the overall level of employment falls, resulting in cyclical unemployment.

This type of unemployment is distinguishable from other types, such as seasonal unemployment, which occurs due to predictable seasonal changes in demand for certain industries, or structural unemployment, which can emerge from changes in market dynamics such as technological advancements. In contrast, cyclical unemployment specifically correlates with the broader economic environment and is not tied to specific timeframes or seasons.