During a recession, companies may lay off workers due to decreased demand for their products or services, which leads to an increase in cyclical unemployment. Conversely, during an economic expansion, companies may hire more workers to meet increased demand for their products or services, leading to a decrease in cyclical unemployment.

Cyclical unemployment is considered to be a temporary type of unemployment that is directly related to the business cycle. It is often contrasted with structural unemployment, which is caused by a mismatch between the skills or location of workers and the available job opportunities, and frictional unemployment, which is caused by the time it takes for workers to search for and find new jobs.