During a recession, which type of unemployment is expected to increase?

Cyclical unemployment is directly related to the economic cycle of expansions and recessions. During a recession, overall demand for goods and services falls, leading businesses to reduce production and lay off workers. This increase in unemployment specifically due to a downturn in the economy is what defines cyclical unemployment. It reflects the short-term job losses that occur as companies respond to decreased demand.

In contrast, structural unemployment occurs due to fundamental shifts in the economy, such as changes in technology or industry practices, leading to a mismatch of skills with available jobs. Frictional unemployment, on the other hand, refers to the temporary unemployment that arises when individuals are between jobs or are entering the workforce for the first time. Real wage unemployment typically happens when wages are set above the market equilibrium, leading to a surplus of labor.

Understanding these distinctions highlights why cyclical unemployment is the focal point during periods of economic downturn.