Note: This is post #102 in a weekly video series on basic economics.
Cyclical unemployment is a type of unemployment that is connected to the regular ups and downs—the cyclical trends in growth and recession—that occur within the business cycle. One factor that affects cyclical unemployment is “sticky wages.” As Alex Tabarrok of Marginal Revolution University explains, wages often adjust more slowly after an economic contraction, which in turn reduces an employer’s incentive to hire. Other factors affecting wage adjustment could include minimum wages or union contracts, which put contractual limits on how low wages can go. All of these factors affect the rate at which unemployed workers are rehired.
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