Identify two possible reasons for unemployment

Cyclical unemployment is the idea that unemployment follows the overall boom and bust cycle of economies. During recessions, unemployment rises, but once the economy picks up again, it declines. Obviously there’s a bit of chicken and egg at play here; the more people work, the more businesses grow, the more jobs there are, and vice versa.

Frictional unemployment is basically the idea that in between the times when workers are looking for jobs, and when they find them, there’s a short period of unemployment that isn’t actually much of a problem. As it takes time and resources for workers to find new jobs and for employees to find new workers, people do not move between jobs instantly. So basically there will always be some people who are unemployed. Economists call the rate of unemployment caused by these frictions, the natural rate of unemployment.

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