Cyclical vs. Structural Recession: Why does it matter?

Years ago as a student in economics I learned all the usual economics jargon; markets info, production, costs and efficiency, supply and demand, inflation and monetary policy, etc, etc, etc, but one of the lessons that stuck with me without having to review my text time and time again was the difference between a cyclical recession versus a structural recession. This lesson in particular stuck with me because it could be applied in many different ways. For the purpose of this discussion I choose to apply it to the individual unemployed jobseeker. But first I will try to explain what cyclical and structural recessions are.

The quick and dirty definition of a cyclical recession is; the regular downturn in the business cycle caused by reactions to periods of out of control confidence or to quote our Fed predecessor Chairman Greenspan “irrational overexhuberance”. This type of cycle usually rights itself when confidence returns and investment and spending begin to ramp up again.

The second and more serious type of recession, structural, is defined as a disconnect between the supply and demand components of an economy. In our case, an example of this would be the skills of a worker not matching the needs of an employer. It could also be that the products and or services produced by business are not what a market demands, thus stagnation and no growth occurs. Please remember that these definitions are as stated “quick and dirty” and are designed to give you the reader a general understanding of the concepts, not to make you an economist.

When applying these principles to that of an unemployed jobseeker. A jobseeker should ask her or himself; Is my unemployment cyclical- meaning that it is part of the usual downturn and as confidence builds so will my opportunities for reemployment, or is it structural- meaning that there is an obvious mismatch of the skills I possess and the skills required for employment in today’s job market.

This leads me back to title of this discussion Cyclical vs. Structural Recession: Why does it matter? The answer to this question is critical to you the individual jobseeker because it tells you if your unemployment situation will resolve itself via the function of time and waiting it out, or if your unemployment will be long and you will need to reinvent yourself in terms of the skills that you possess if your unemployment situation is to improve.