The unemployment rate is the percentage of unemployed workers in the labor force. It's a key indicator of the health of the country's economy. Unemployment typically rises during recessions and falls during periods of economic prosperity. It also declined during five U.S. wars, especially World War II. The unemployment rate rose in the recessions that followed those wars.
How Unemployment Tracks Recessions
Unemployment tracks the business cycle. Recessions cause high unemployment. Businesses lay off workers and jobless workers have less to spend as a result. Lower consumer spending reduces business revenue, which forces companies to cut more payroll. This downward cycle is devastating.
The highest rate of U.S. unemployment was 24.9% in 1933, during the Great Depression. Unemployment remained above 14% from 1931 to 1940. It remained in the single digits until September 1982 when it reached 10.1%. During the Great Recession, unemployment reached 10% in October 2009.
The government steps in when unemployment exceeds 6%. The Federal Reserve uses expansionary monetary policy to lower interest rates. Congress uses fiscal policy to create jobs and provide extended unemployment benefits.
The unemployment rate falls during the expansion phase of the business cycle. The lowest unemployment rate was 1.2% in 1944.
It may seem counterintuitive to think unemployment can get too low, but it can.
The Federal Reserve says that the natural rate of unemployment falls between 3.5% and 4.5%. If the rate falls any lower than that, the economy could experience too much inflation, and companies could struggle to find good workers that allow them to expand operations.
The unemployment rate is a lagging indicator. When an economy begins to improve after a recession, for example, the unemployment rate may continue to worsen for some time. Many companies hesitate to hire workers until they regain confidence in the recovery, and it may take several quarters of economic improvement before they feel confident that the recovery is real.
If you’re looking for work after a recession, you’ll find the going is still tough. It might take several months before the unemployment rate falls.
U.S. Unemployment Rates by Year
The U.S. Bureau of Labor Statistics has measured unemployment since the stock market crash of 1929. The following table shows how it has changed by year and why:
Year | Unemployment Rate (as of Dec.) | GDP Growth | Inflation (Dec. YOY) | What Happened |
---|---|---|---|---|
1929 | 3.2% | NA | 0.6% | Market crash |
1930 | 8.7% | -8.5% | -6.4% | Smoot-Hawley |
1931 | 15.9% | -6.4% | -9.3% | Dust Bowl |
1932 | 23.6% | -12.9% | -10.3% | Hoover's tax hikes |
1933 | 24.9% | -1.2% | 0.8% | FDR's New Deal |
1934 | 21.7% | 10.8% | 1.5% | Depression eased thanks to New Deal |
1935 | 20.1% | 8.9% | 3.0% | |
1936 | 16.9% | 12.9% | 1.4% | |
1937 | 14.3% | 5.1% | 2.9% | Spending cuts |
1938 | 19.0% | -3.3% | -2.8% | FLSA starts min wage |
1939 | 17.2% | 8.0% | 0% | Drought ended |
1940 | 14.6% | 8.8% | 0.7% | U.S. draft |
1941 | 9.9% | 17.7% | 9.9% | Pearl Harbor |
1942 | 4.7% | 18.9% | 9.0% | Defense tripled |
1943 | 1.9% | 17.0% | 3.0% | Germany surrendered at Stalingrad |
1944 | 1.2% | 8.0% | 2.3% | Bretton Woods |
1945 | 1.9% | -1.0% | 2.2% | War ends. Min wage $0.40 |
1946 | 3.9% | -11.6% | 18.1% | Employment Act |
1947 | 3.6% | -1.1% | 8.8% | Marshall Plan negotiated |
1948 | 4.0% | 4.1% | 3.0% | Truman reelected |
1949 | 6.6% | -0.6% | -2.1% | Fair Deal; NATO |
1950 undefined | 4.3% | 8.7% | 5.9% | Korean War; Min wage $0.75 |
1951 | 3.1% | 8.0% | 6.0% | Expansion |
1952 | 2.7% | 4.1% | 0.8% | Expansion |
1953 | 4.5% | 4.7% | 0.7% | Korean War ended |
1954 | 5.0% | -0.6% | -0.7% | Dow returned to 1929 level |
1955 | 4.2% | 7.1% | 0.4% | Unemployment fell |
1956 | 4.2% | 2.1% | 3.0% | Min wage $1.00 |
1957 | 5.2% | 2.1% | 2.9% | Recession |
1958 | 6.2% | -0.7% | 1.8% | |
1959 | 5.3% | 6.9% | 1.7% | Expansion |
1960 | 6.6% | 2.6% | 1.4% | Recession |
1961 | 6.0% | 2.3% | 0.7% | JFK; Min wage $1.15 |
1962 | 5.5% | 6.1% | 1.3% | Cuban Missile Crisis |
1963 | 5.5% | 4.4% | 1.6% | LBJ; Min wage $1.25 |
1964 | 5.0% | 5.8% | 1.0% | Tax cut |
1965 | 4.0% | 6.5% | 1.9% | US enters Vietnam War |
1966 | 3.8% | 6.6% | 3.5% | Expansion |
1967 | 3.8% | 2.7% | 3.0% | Min wage $1.40 |
1968 | 3.4% | 4.9% | 4.7% | Min wage $1.60 |
1969 | 3.5% | 3.1% | 6.2% | Nixon took office |
1970 | 6.1% | 0.2% | 5.6% | Recession |
1971 | 6.0% | 3.3% | 3.3% | Emergency Employment Act; Wage-price controls |
1972 | 5.2% | 5.3% | 3.4% | Ongoing Stagflation; Watergate break-in |
1973 | 4.9% | 5.6% | 8.7% | CETA ; Gold standard ; Vietnam War ended |
1974 | 7.2% | -0.5% | 12.3% | Nixon resigns; Min. wage $2.00 |
1975 | 8.2% | -0.2% | 6.9% | Recession ended |
1976 | 7.8% | 5.4% | 4.9% | Expansion |
1977 | 6.4% | 4.6% | 6.7% | Carter took office |
1978 | 6.0% | 5.5% | 9.0% | Fed raised rate to 20% to stop inflation |
1979 | 6.0% | 3.2% | 13.3% | |
1980 | 7.2% | -0.3% | 12.5% | Recession |
1981 | 8.5% | 2.5% | 8.9% | Reagan tax cuts; Min. wage $3.35 |
1982 | 10.8% | -1.8% | 3.8% | Job Training Partnership Act; Garn-St.Germain Act |
1983 | 8.3% | 4.6% | 3.8% | Reagan increased military spending |
1984 | 7.3% | 7.2% | 3.9% | |
1985 | 7.0% | 4.2% | 3.8% | Expansion |
1986 | 6.6% | 3.5% | 1.1% | Tax cuts |
1987 | 5.7% | 3.5% | 4.4% | Black Monday |
1988 | 5.3% | 4.2% | 4.4% | Fed raised rate |
1989 | 5.4% | 3.7% | 4.6% | Reforms made to address S&L Crisis |
1990 | 6.3% | 1.9% | 6.1% | Recession |
1991 | 7.3% | -0.1% | 3.1% | Desert Storm; Min. wage $4.25 |
1992 | 7.4% | 3.5% | 2.9% | NAFTA drafted |
1993 | 6.5% | 2.8% | 2.7% | Omnibus Budget Reconciliation Act |
1994 | 5.5% | 4.0% | 2.7% | School to Work Act |
1995 | 5.6% | 2.7% | 2.5% | Expansion |
1996 | 5.4% | 3.8% | 3.3% | Welfare reform |
1997 | 4.7% | 4.4% | 1.7% | Min. wage $5.85 |
1998 | 4.4% | 4.5% | 1.6% | LTCM crisis |
1999 | 4.0% | 4.8% | 2.7% | Euro; Serbian airstrike |
2000 | 3.9% | 4.1% | 3.4% | NASDAQ hit record high |
2001 | 5.7% | 1.0% | 1.6% | Bush tax cuts; 9/11 attacks |
2002 | 6.0% | 1.7% | 2.4% | War on Terror |
2003 | 5.7% | 2.9% | 1.9% | JGTRRA |
2004 | 5.4% | 3.8% | 3.3% | Expansion |
2005 | 4.9% | 3.5% | 3.4% | Bankruptcy Abuse Prevention Act; Katrina |
2006 | 4.4% | 2.9% | 2.5% | Expansion |
2007 | 5.0% | 1.9% | 4.1% | |
2008 | 7.3% | -0.1% | 0.1% | Min. wage $6.55; Financial crisis |
2009 | 9.9% | -2.5% | 2.7% | ARRA; Min. wage $7.25; Jobless benefits extended |
2010 | 9.3% | 2.6% | 1.5% | Obama tax cuts |
2011 | 8.5% | 1.6% | 3.0% | 26 months of job losses by July; Debt ceiling crisis; Iraq War ended |
2012 | 7.9% | 2.2% | 1.7% | QE; 10-year rate at 200-year low; Fiscal cliff |
2013 | 6.7% | 1.8% | 1.5% | Stocks up 30%; Long term = 5% unemployment |
2014 | 5.6% | 2.5% | 0.8% | Unemployment at 2007 levels |
2015 | 5.0% | 3.1% | 0.7% | Natural rate |
2016 | 4.7% | 1.7% | 2.1% | Presidential race |
2017 | 4.1% | 2.3% | 2.1% | Dollar weakened |
2018 | 3.9% | 3.0% | 1.9% | Trump tax cuts |
2019 | 3.5% | 2.2% | 2.3% | Goldilocks economy |