Cyclical Unemployment

In recessions, we typically see increases in unemployment. Figure 5 shows unemployment in the period of the Great Depression. This diagram is based on data from the National Bureau of Economic Research. We see employment rising from virtually zero to 25% of the work force in 1933, then rising again to 20% in the recession of 1938.

Figure 5 -- Unemployment in the Great Depression

Figure 6 shows unemployment in the period after World War II into the 1990's, based on data from the Economic Report of the President. Over this longer period we see a quite different pattern, with unemployment never below three percent (this may reflect differences in measurement) but never above 10% either. We see unemployment rising in the recessions of 1948, 1958 and 1961, 1969, 1973, 1981, and 1990. The apparent upward trend from the mid-1940's to the mid-1980's may have been reversed in the 1990's.

Figure 6 -- Unemployment after World War II

Most modern economists would interpret these changes in the following way: the decline in production in a recession is associated with a decline in the demand for labor. The decline in the demand for labor leads (perhaps temporarily) to an increase in unemployment, as measured by the standard statistics. This increased unemployment is called cyclical unemployment. In the excess-supply interpretation, cyclical unemployment in particular is thought of as excess supply of labor.

Structural Unemployment