Unemployment is a significant challenge for most developing economies, and Ghana is no exception. Among the various forms of unemployment, cyclical unemployment is particularly important because it reflects the ups and downs of the nation’s economic activity. When the economy slows down, businesses reduce production, investment falls, and workers lose their jobs. When the economy recovers, new opportunities emerge, and employment begins to grow again.
Cyclical unemployment has been experienced in Ghana at various points, especially during economic downturns such as the 2014–2016 fiscal crisis or the COVID-19 pandemic. Understanding this type of unemployment and how it differs from others can help policymakers, business owners, and job seekers respond more effectively when economic conditions change.
What Is Cyclical Unemployment?
Cyclical unemployment in Ghana refers to job losses that occur when the country’s economy goes through a downturn or recession. It happens not because workers lack skills or motivation, but because demand for goods and services declines. When people buy less, companies earn less and are forced to cut down on production and lay off workers.
For instance, when inflation rises and consumer spending drops, many small businesses—especially in the retail and hospitality sectors—experience slower sales. As a result, they may reduce their workforce or postpone hiring until the market stabilises. Conversely, when the economy begins to grow again and consumer confidence returns, businesses start expanding and re-employing workers, reducing cyclical unemployment.
In short, cyclical unemployment is driven by the health of the overall economy. It’s temporary but can have serious effects if the downturn lasts for a long time.
Causes of Cyclical Unemployment in Ghana
The Ghanaian economy, like others, goes through cycles of growth and slowdown. During periods of economic contraction, several key factors contribute to cyclical unemployment:
- Falling Consumer Demand: When inflation increases or living costs rise, households cut back on spending. Businesses, in turn, sell less and reduce staff.
- Reduced Government Spending: Budget deficits or debt-control measures may force the government to reduce public sector hiring and delay projects, especially in infrastructure and construction.
- High Interest Rates: When the Bank of Ghana raises interest rates to control inflation, borrowing becomes expensive. Businesses and individuals borrow less, reducing investment and spending.
- Currency Depreciation: A weaker cedi increases the cost of imported goods, lowering purchasing power and demand for products. This can lead to business closures or downsizing.
For example, during 2014–2016, Ghana faced power supply challenges (“dumsor”) and high fiscal deficits, causing many manufacturing firms to scale down operations. Thousands of factory and service workers were laid off, demonstrating a period of cyclical unemployment.
Cyclical Unemployment During the COVID-19 Period
A more recent and striking example of cyclical unemployment in Ghana occurred during the COVID-19 pandemic in 2020. When restrictions were introduced to contain the virus, many sectors, particularly tourism, aviation, education, and hospitality, suffered significant declines in revenue.
Hotels, restaurants, and travel agencies laid off workers or placed them on unpaid leave. Informal traders in markets and transport operators also experienced drastic income losses as demand for their services dropped. The Ghana Statistical Service estimated that nearly 770,000 workers experienced reduced hours or temporary layoffs during the lockdown period.
However, as restrictions eased and the economy reopened, most of these businesses began rehiring. The recovery showed how cyclical unemployment typically declines once economic activity picks up again.
Cyclical Unemployment and Ghana’s Business Cycle
Like all economies, Ghana experiences phases of expansion, slowdown, contraction, and recovery—collectively known as the business cycle. Cyclical unemployment mirrors these movements.
- During Expansion: Economic growth increases demand for labor, and companies hire more workers.
- At the Peak: Unemployment reaches its lowest level as production and consumption thrive.
- During Contraction: Businesses reduce spending, investment slows, and layoffs occur.
- At the Trough: The economy hits its lowest point, and cyclical unemployment peaks.
In Ghana, these cycles are influenced by global commodity prices, especially cocoa, gold, and crude oil. When prices for these exports rise, the economy grows, creating jobs. But when they fall, revenue drops, leading to slower growth and job losses.
Comparing Cyclical Unemployment With Other Types in Ghana
Cyclical unemployment is only one piece of Ghana’s unemployment puzzle. The country also faces structural, frictional, seasonal, and institutional unemployment—each caused by different factors. Understanding the differences helps identify effective policy responses.
Structural Unemployment
Structural unemployment occurs when there is a mismatch between the skills workers have and the skills employers need. In Ghana, this is common in sectors like technology, energy, and manufacturing.
For example, many university graduates hold degrees in humanities, while industries are looking for technical or engineering skills. Even when the economy grows, these workers remain unemployed because their qualifications don’t match available jobs.
This kind of unemployment requires long-term investment in education, technical training, and entrepreneurship to align the workforce with market needs.
Frictional Unemployment
Frictional unemployment happens when people are between jobs or just entering the workforce. In Ghana, young graduates often experience this form of unemployment as they search for their first jobs or transition from one role to another.
Even in periods of economic growth, frictional unemployment exists because it takes time for job seekers to find suitable employment. Initiatives like job fairs, digital job-matching platforms, and internship programmes can help reduce this gap.
Seasonal Unemployment
Seasonal unemployment occurs when job availability depends on the time of year. In Ghana, it’s particularly evident in agriculture, tourism, and certain retail sectors.
For instance, cocoa farmers and farm labourers are busy during planting and harvesting seasons but may have little or no work during off-peak months. Likewise, coastal tourism businesses tend to employ more people during holiday seasons and fewer during the rainy period.
Government agricultural diversification programmes and off-season processing industries can help reduce the impact of seasonal unemployment.
Institutional Unemployment
Institutional unemployment arises when policies, regulations, or social systems discourage employers from hiring. In Ghana, this could include rigid labor laws, high taxes on businesses, or difficulties in accessing finance for small enterprises.
Strong union influence, high minimum wage expectations, and bureaucratic red tape can also contribute. These conditions can create a situation where companies are hesitant to expand or take on new workers even when they have the potential to grow.
Unlike cyclical unemployment, institutional unemployment persists regardless of whether the economy is booming or slowing down.
When Multiple Types of Unemployment Occur Together
In Ghana, different forms of unemployment often overlap. For example, a recession may cause cyclical unemployment, while poor education systems and skill mismatches add structural unemployment. At the same time, some workers experience frictional unemployment while switching jobs, and others lose their seasonal positions.
Even when Ghana’s economy is performing well, not everyone is employed. Economists describe this as the “natural rate of unemployment”—the level that exists even in a healthy economy.
Measuring Unemployment in Ghana
Unemployment in Ghana is measured by dividing the number of unemployed people by the total labor force (employed plus unemployed) and multiplying by 100.
Unemployment Rate = (Unemployed ÷ Labor Force) × 100
If 1 million Ghanaians are unemployed out of a labor force of 12 million, the unemployment rate would be about 8.3%.
Although Ghana’s official unemployment rate has often been reported as moderate, underemployment—where people work part-time or in low-paying informal jobs—is widespread. This indicates that many Ghanaians are not fully utilising their skills or earning their potential income.
Unemployment vs. Underemployment in Ghana
Unemployment refers to people who are actively looking for work but cannot find any. Underemployment, on the other hand, describes people who are working below their skill level or working part-time when they prefer full-time positions.
In Ghana, underemployment is particularly common in the informal sector, which employs over 80% of the labor force. For instance, university graduates may end up driving taxis, selling goods, or taking casual work just to survive. This is often a temporary response to economic slowdowns and is closely related to cyclical unemployment.
Why Cyclical Unemployment Matters in Ghana
Cyclical unemployment affects not only individual workers but also the national economy. When many people lose their jobs, household incomes fall, spending decreases, and businesses earn less. Government tax revenue declines while welfare and social protection costs rise.
During such times, policy responses are crucial. The government can:
- Increase public investment in infrastructure to create jobs.
- Support small and medium-sized enterprises through affordable loans.
- Reduce interest rates to stimulate business expansion.
- Provide skills training and entrepreneurship support for laid-off workers.
These measures can help Ghana recover more quickly from economic downturns and reduce the impact of cyclical unemployment on society.
The Final Take
Cyclical unemployment in Ghana reflects the natural ups and downs of the economy. It rises when the economy slows—like during recessions or crises—and falls when growth resumes. While it can cause hardship for families and communities, it is often temporary and responds well to effective government and private-sector action.
Understanding the differences between cyclical, structural, frictional, seasonal, and institutional unemployment helps explain why unemployment persists even when the economy appears to be improving.
For Ghana, managing cyclical unemployment means building a resilient economy—diversifying exports, supporting local production, and investing in skills development. When these foundations are strong, Ghana can better withstand global shocks and create sustainable jobs for its growing population.
Commonly Asked Questions about Cyclical Unemployment
What Causes Cyclical Unemployment In Ghana?
It’s mainly caused by economic slowdowns, high inflation, reduced consumer spending, and tight monetary policies that limit borrowing and investment.
How Does Cyclical Unemployment Affect Ghanaians?
It leads to job losses, lower household income, and reduced business activity. Families often struggle with living costs, and government revenue declines as a result.
What Are Examples Of Cyclical Unemployment In Ghana?
During the COVID-19 pandemic and the 2014–2016 power crisis, many Ghanaians lost jobs in construction, tourism, and retail as economic activity slowed sharply.
How Is Cyclical Unemployment Different From Structural Unemployment?
Cyclical unemployment is temporary and linked to economic performance, while structural unemployment happens when workers lack the skills employers need, even during growth.
Can Cyclical Unemployment Be Prevented?
It can’t be fully prevented, but its impact can be reduced through strong economic policies, job creation programs, and investment in small and medium enterprises.
What Role Does The Government Play In Reducing It?
The Ghanaian government can create jobs through public infrastructure projects, support local industries, and implement financial policies that boost business growth.
How Is Unemployment Measured In Ghana?
It’s measured by dividing the number of unemployed individuals by the total labor force, then multiplying by 100 to get the unemployment rate.
What Is The Difference Between Unemployment And Underemployment In Ghana?
Unemployment means people have no jobs but are actively looking, while underemployment means workers have jobs that don’t fully use their skills or pay enough.
Why Is Understanding Cyclical Unemployment Important For Ghana?
It helps policymakers design effective responses to protect workers and businesses during recessions and ensure a faster, more stable recovery.