Cyclical Unemployment: How to Stay Relevant During an Economic Downturn

When a business grows, it generally has to hire more employees to keep up with demand. However, when a business slows down, it may reduce the amount of staff it hires or even conduct layoffs. Cyclical unemployment refers to the latter scenario. It’s a period of short-term unemployment tied closely to an economic slowdown, like a recession. When that initial unemployment lasts for a longer period of time, it tends to become structural, meaning that the skills people have don’t match the available jobs. 

A growing number of tech companies have instituted layoffs recently in response to the slowing economy, which has sparked concerns about an upcoming phase of cyclical unemployment. You might experience unique challenges that come with any period of higher unemployment rates, but you can take actions to minimize their effect. 

Let’s go over more about cyclical unemployment, how long it tends to last, and what you can do to stay relevant in your current role or as you set about finding a new one.

What is cyclical unemployment? 

Cyclical unemployment is a short period of higher unemployment that results from an economic slowdown. In a slowdown, consumers do not purchase as much, leading businesses to reduce their overall labor expenditures in an attempt to address a decline in growth or productivity.   

Every economy has some amount of unemployment. When unemployment is low (what’s sometimes known as a “tight labor market”), workers may have greater power because their services are in high demand. However, when unemployment rises, it may be harder to find new opportunities because there may be fewer available roles and more people applying to them. 

What are the four types of unemployment?

The four types of unemployment are frictional, structural, cyclical, and institutional. Frictional unemployment is when individuals naturally change jobs, while structural unemployment refers to unemployment caused by changes within our society, such as the introduction of new technology. Cyclical unemployment relates to natural cycles of the economy, and institutional unemployment is related to institutional changes that drive employment factors, like government policies or unions.

How long does cyclical unemployment last?

Compared to structural unemployment, cyclical unemployment is typically shorter. While you might wonder how to calculate cyclical unemployment to anticipate the next downturn, you won’t find a direct answer. It can last anywhere from one month to 1.5 years. Recovery depends on the economy rebounding due to a number of reasons. For example, consumers begin spending more and demand rises, interest rates decrease, or the government institutes programs to curb unemployment.   

How does cyclical unemployment affect the job market?

During a period of cyclical unemployment, companies tend to reduce hiring and even conduct layoffs. When the economy starts to rebound, it may not lead to an immediate decrease in unemployment. Instead, companies may ask more from their current employees rather than focus on hiring until it’s clear how much consumer spending has increased.  

Cyclical unemployment also tends to affect specific industries. When the demand for a particular industry’s product or service drops significantly, as the construction industry experienced during the housing crisis in 2008, it can have a sweeping impact on the entire workforce. Employment in the construction industry fell by 1.5 million jobs between 2007 and 2009, though that industry has since recovered [1]. Similarly, another cyclical unemployment example you might recognize is the downturn in employment due to COVID-19. The US Bureau of Labor Statistics found nonfarm payroll employment declined by 9.4 million in 2020, the largest drop in recorded employment history [2]. 

4 actions to take during cyclical unemployment

Whether you are concerned about your current role or have recently been laid off, you can take actions during a period of cyclical unemployment to strengthen your skill set and stay relevant. 

1. Develop your skill set.

Each role requires a particular set of job skills that usually includes workplace, technical, and transferable skills. Learning new technical skills and identifying your transferable skills can help. Let’s discuss each one in more detail:  

Build in-demand technical skills.

Some technical skills are more in demand than others, such as user experience (UX) and data analysis. Learn more about the seven skills in high demand at the moment. We’ve also compiled important skills for the professions outlined below: 

• Project management

• Data analysis 

• Data engineering

• IT

• UX design

• Marketing

• Customer service

• Writing

Identify transferable skills.

Transferable skills are those you can take from job to job, such as critical thinking, communication, and management. They have more to do with how you complete your work and how you work with others—also known as interpersonal skills. 

Applying to a new job or changing careers often requires identifying the transferable skills you will bring to a new role.

Learn more: How to Feature and Format Key Skills on Your Resume

2. Consider earning a relevant credential.

As part of your skills development, you may want to consider earning a relevant credential, like a professional certificate, or attending a boot camp to gain or improve your job-ready skills. On Coursera, you’ll find Professional Certificates from Google, Meta, IBM, Salesforce, and other industry leaders in a range of fields: data analytics, project management, business, sales, and marketing. 

3. Diversify your income stream. 

In August 2024, 5.1 percent of employed persons in the United States held multiple jobs [3]. If you’re concerned about the stability of your primary income stream, it may be worthwhile to explore additional opportunities you can do on the side. 

Taking on a side job, side hustle, or establishing a passive income stream can allow you to explore a passion, develop important skills that feed back into your main role, and earn extra money. 

• 15 Side Jobs to Make Extra Money

• 21 Side Hustle Ideas and How to Get Started

• 11 Side Hustles from Home

• 11 Passive Income Ideas to Increase Your Cash Flow

4. Look for in-demand jobs.

Find jobs that are in high demand, such as medical assistants, web developers, and financial managers. Keep in mind that demands may shift based on the changing needs of the economy, but the US Bureau of Labor Statistics regularly tracks jobs that are expected to grow faster than others and can be an excellent resource as you explore opportunities. For the most effective job search, stay up-do-date with current employment trends and industry demands.

Explore more ways to counter cyclical unemployment 

Cyclical unemployment refers to short-term unemployment increases related to economic downturns. To mitigate the effects of this period, you can take advantage of the opportunity to learn new skills and explore new professional paths. Brush up on your interview skills by enrolling in Advanced Interviewing Techniques from the University of Maryland on Coursera, or explore what you need to build a strong Indeed or LinkedIn profile with one of Coursera’s Guided Projects.

You can also build in-demand skills for lucrative careers in project management, UX design, data science, marketing analytics, and sales by earning a Professional Certificate from leading companies like Google, Meta, and IBM, all available on Coursera.