Definition of Cyclical Unemployment

Cyclical Unemployment

unemployment that increases when the economy enters a recession and decreases when the economy enters a boom.

Unemployment rate

The ratio of the number of people classified as unemployed to the total labor force.

Countercyclical

Falling during expansions and rising during recessions. A countercyclical policy stimulates during a recession and contracts during an expansion.

Frictional Unemployment

unemployment associated with people changing jobs or quitting to search for new jobs.

Institutionally Induced Unemployment

unemployment due to institutional phenomena such as the degree of labor force unionization, the level of discrimination, and government policies such as unemployment insurance programs, minimum wages, or regulations on business.

Natural Rate of Unemployment (NRU)

The level of unemployment characterizing the economy in long-run equilibrium, determined by the levels of frictional, structural, and institutionally induced unemployment. At this rate of unemployment, inflation should be constant, so it is sometimes called the nonaccelerating inflation rate of unemployment, or NAIRU.

Procyclical

Increasing during booms and decreasing during recessions.

Structural Unemployment

unemployment due to a mismatch between the skills or location of labor and the skills or location required by firms.

Unemployment Insurance

A program in which workers and firms pay contributions and workers collect benefits if they become unemployed.

Unemployment rate

Fraction of the labor force that is not employed.

Federal Unemployment Tax Act (FUTA)

A federal Act requiring employers to pay a tax on the wages paid to their employees, which is then used to create a
pool of funds to be used for unemployment benefits.

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