Unemployment typically rises during recessions and falls during periods of economic prosperity. The rate declined during several U.S. wars, particularly during World War II. The unemployment rate rose during the recessions that followed those wars. Here’s how the unemployment rate has changed throughout history and how it has compared to gross domestic product (GDP) and inflation.
How Unemployment Tracks Recessions
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 tracks the business cycle. Recessions are part of that cycle and can cause high unemployment. Businesses often lay off workers and, without an income, those jobless workers have less money to spend. Lower consumer spending reduces business revenue, which forces companies to cut more payroll. This downward cycle can be devastating to individuals and the economy. The highest rate of U.S. unemployment was 24.7% 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. In 2020, it reached double digits again (14.7%) in April when the U.S. was dealing with a pandemic and recession.
How the US Fights High Unemployment
The Federal Reserve uses expansionary monetary policy to lower interest rates. Congress uses fiscal policy to cr-eate jobs and provide extended unemployment benefits. The unemployment rate typically falls during the expansion phase of the business cycle. The lowest unemployment rate in modern history was 1.2% in 1944. The Federal Reserve does not target specific figures for the natural rate of unemployment, but simply seeks “the maximum level of employment” as part of its long-term financial policy goals. 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.
US Unemployment Rates by Year
The U.S. Bureau of Labor Statistics (BLS) has measured unemployment since the stock market crash of 1929. Gross domestic product (GDP) is the measure of economic output by a country. When the unemployment rate is high, there are fewer workers. That could lead to less economic output and a lower rate of GDP. When inflation rises, the prices of goods and services go up, making them more expensive. If there is a high rate of unemployment at the same time, this could cause issues for those without an income since they may be struggling to afford basic necessities. The following table shows how unemployment, GDP, and inflation have changed by year since 1929. Unless otherwise stated, the unemployment rate is for December of that year. Unemployment rates for the years 1929 through 1947 were calculated from a different BLS source due to current BLS data only going back to 1948. GDP is the annual rate and inflation is for December of that year and is the year-over-year rate.
