Unemployment Rate by Year Compared to Inflation and GDP

Unemployment in U.S. History

apples being sold to unemployed people during the Great Depression
Unemployment reached an all-time high of 25% during the Great Depression.. Interim Archive/Getty Images

The U.S. government tries to reduce high levels of unemployment, but hasn't always been successful in its efforts. High rates of unemployment is caused by slow economic growth, including recessions or worse. This is measured by U.S. GDP. As it declines, businesses lay off workers, and unemployment skyrockets.

In return, jobless workers have less to spend, which worsens any slump. This downward cycle is very destructive, and best avoided.

When that many people are unemployed, the economy loses one of its key drivers of growth -- consumer spending. Quite simply, workers have less money to spend until they find another job. If high national unemployment continues, it can deepen a recession or even cause a depression. That's because less consumer spending from unemployed workers reduces business revenue, which forces companies to cut more payroll to reduce their costs. This can become a downward spiral very quickly.

The government usually steps in when the unemployment rate reaches 6% or more. The Federal Reserve will first step in with expansionary monetary policy, lowering the Federal funds rate. If unemployment continues, the Federal government will use fiscal policy, creating jobs directly by hiring employees for public works projects. It can also stimulate demand by providing extended unemployment benefits. Find out more about unemployment solutions.

You may think that unemployment can't get too low, but it can. Even in a healthy economy, there should always be a natural rate of unemployment. That's because people move before they get a new job, they are getting retrained for a better job, or they have just started looking for work and are waiting until they find just the right job.

The lowest unemployment has ever been is 2.5%. Even when the unemployment rate is 4%, it's difficult for companies to expand because they have a hard time finding good workers.

Unemployment in the U.S. has been measured by the Bureau of Labor Statistics (BLS) since 1929. That's why the table below shows the unemployment rate for every year, but only since the stock market crash of 1929. You can compare how it rises during recessions. It usually fell during the five wars, especially during World War II, but rose again in the recessions that followed.

The table also allows you to compare unemployment to swings in the business cycle. Keep in mind that the unemployment rate is a lagging indicator. This means it continues to worsen, even as economic growth improves. Even when the economy starts to turn around, contracts still get canceled and businesses still lay off workers. They're hesitant about hiring workers back until they are sure growth is on a stable upward trend. 

Comparing unemployment by year to fiscal and monetary policies provides a complete picture of what works and what doesn't.

You'll probably notice that Federal policies, like employment acts, aren't as powerful as lowering interest rates to end recessions. 

U.S. Unemployment Rate by Year Compared to Growth and Major Events

YearGDP GrowthUnemployment Rate (December)Inflation (December Year-over-Year)What Happened
1929NA3.2%0.6%The growth of the Roaring Twenties was high, so unemployment was low. However, the stock market crash in October kicked off the Great Depression.
1930-8.5%8.7%-6.4%Congress passed the Smoot-Hawley tariff to protect U.S. jobs. Instead, world trade fell 65% as trading partners retaliated.
1931-6.4%15.9%-9.3%Droughts created the Dust Bowl, sending farmers off their land. The Fed raised interest rates to protect the dollar's value, further slowing growth.
1932-12.9%23.6%-10.3%Roosevelt was elected, signing into law the New Deal.
1933-1.3%24.9%0.8%Depression started to lift, thanks to New Deal programs.
193410.8%21.7%1.5%Economy started growing and unemployment started falling.
19358.9%20.1%3.0%Economy responded to fiscal stimulus.
193612.9%16.9%1.4%Economy grew, reducing unemployment.
19375.1%14.3%2.9%Roosevelt, fearing a budget deficit, cut spending for 1937, plunging the nation back into the Depression.
1938-3.3%19%-2.8%No more New Deal legislation was passed. The U.S. minimum wage was established. Unemployment rose briefly.
19398.0%17.2%0%Dust Bowl drought finally ended. Hitler invaded Poland. U.S. began spending again to build up military as Europe entered WWII.
19408.8%14.6%0.7%Unemployment began falling as U.S. began the draft.
194117.7%9.9%9.9%U.S. entered WWII.
194218.9%4.7%9.0%Unemployment fell further.
194317.0%1.9%3.0%Germany and Italy surrendered.
19448.0%1.2%2.3%With the Bretton-Woods Agreement, the dollar became the global currency. This replaced the gold standard, which was dropped as countries spent to pay for the war effort.
1945-1.0%1.9%2.2%Truman became President, dropped the nuclear bomb in August, ending WWII. Unemployment fell to lowest level ever.
1946-11.6%3.9%18.1%Employment Act was signed, requiring the Federal government to manage unemployment. Despite a huge cutback in military spending, businesses grew strongly.
1947-1.1%3.9%8.8%Marshall Plan and Truman Doctrine boosted business growth to repair Europe. Cold War began.
19484.1%4%3.0%Truman retained Presidency.
1949-0.5%6.6%-2.1%Fair Deal. NATO established. Communists took over China.
19508.7%4.3%5.9%Expansion. Korean War began.
19518.1%3.1%6.0%Expansion.
19524.1%2.7%0.8%Expansion.
19534.7%4.5%0.7%Eisenhower became President. Korean War ended, and post-war recession began.
1954-0.6%5%-0.7%Recession ended. The Dow finally returned to its pre-Depression level.
19557.1%4.2%0.4%Unemployment declined.
19562.1%4.2%3.0%Economy slowed.
1957.12%5.2%2.9%European Economic Community launched. Soviets started space race with Sputnik. Recession began, as Fed panicked over inflation and raised interest rates.
1958-0.7%6.2%1.8% 
19596.9%5.3%1.7%Expansion. Fed raised rate to 4%.
19602.6%6.6%1.4%Recession began, so Fed lowered rate to 1.98%. Birth control pill approved, allowing women more choice to enter workforce.
19612.6%6%0.7%JFK became President. Bay of Pigs invasion.
19626.1%5.5%1.3%Economy grew despite Cuban Missile Crisis.
19634.4%5.5%1.6%LBJ became President when JFK was assassinated. Fed raised rate to 3.5%.
19645.8%5%1.0%JFK's tax cut passed. Fed raised rate to 3.85%.
19656.5%4%1.9%Expansion. U.S. entered Vietnam War. Fed raised rate to 4.32%.
19666.6%3.8%3.5%Expansion. Fed raised rate to 5.76%.
19672.7%3.8%3.0%Expansion. Inflation at 3%.
19684.9%3.4%4.7%Expansion. Fed raised rate to 6% to fight inflation.
19693.1%3.5%6.2%Nixon became President. ARPANET created. Man landed on the moon. Fed raised rate to 9.19%.
19700.2%6.1%5.6%Fed lowered rate to 4.9% to combat mild recession, despite inflation.
19713.3%6%3.3%Fed lowered rate to 3.5%, then raised it to 5%. Nixon imposed wage-price controls to stem mild inflation, and signs Emergency Employment Act to create 150,000 jobs.
19725.2%5.2%3.4%Watergate scandal begins.
19735.6%4.9%8.7%Nixon signed Comprehensive Employment Training Actt, ended Vietnam War, and took dollar off gold standard. This created massive inflation, requiring Fed to doubled interest rates to 11%, and plunging economy into recession.
1974-0.5%7.2%12.3%Stagflation. Fed raised rate to 13% to stem inflation, further slowing economy. Ford became President when Nixon resigned.
1975-0.2%8.2%6.9%With inflation tamed, Fed lowered rate to 7.5%, ending recession.
19765.4%7.8%4.9%Expansion. Fed lowered rate to 4.75%.
19774.6%6.4%6.7%Expansion. Carter became President. Inflation at 6.7%.
19785.6%6%9.0%Expansion. Fed raised rate to 10%.
19793.2%6%13.3%Expansion. Fed raised rate to 15.5%, then lowered it to 12% confusing price-setters who kept prices high.
1980-0.2%7.2%12.5%Fed raised rate to 20%, creating another recession, to fight inflation. It lowered the rate to 8%, to fight recession. When it ended, Fed raised rate to 20%
19812.6%8.5%8.9%Reagan became President. Fed raised rate to 20% in January, lowered it to 16% in April, raised it to 20% in May, reigniting recession. Fed lowered rate to 12% by year end.
1982-1.9%10.8%3.8%Job Training Partnership Act signed. Recession finally ended when the Fed lowered rates to 8.5%. The Garn-St.Germain Act was passed, lowering bank capital requirements to fight recession and setting stage for next bank crisis.
19834.6%8.3%3.8%Reagan increased military spending by 35% to fight Cold War.
19847.3%7.3%3.9%Deficit spending spurred growth and reduced unemployment.
19854.2%7%3.8%Expansion.
19863.5%6.6%1.1%Expansion. Reagan cut taxes.
19873.5%5.7%4.4%Expansion. Black Monday stock market crash in October.
19884.2%5.3%4.4%Expansion. Fed raised rate to 9.75%..
19893.7%5.4%4.6%Fed lowered rate to 8.25% to fight fallout from 1989 Savings and Loan Crisis.
19901.9%6.3%6.1%Expansion hit peak in July, began contracting.
1991-0.1%7.3%3.1%Soviet Union collapsed, ending Cold War. Operation Desert Storm. Fed lowered rate to 4%.
19923.6%7.4%2.9%Fed lowered rate to 3%. NAFTA agreement signed.
19932.7%6.5%2.7%President Clinton takes office.European Union established. Internet used widely.
19944.0%5.5%2.7%Clinton signed School to Work Act to train high school grads.
19952.7%5.6%2.5%Expansion.
19963.8%5.4%3.3%Expansion.
19974.5%4.7%1.7%Expansion.
19984.4%4.4%1.6%President Clinton impeached. Federal budget created a surplus.
19994.8%4%2.7%Euro introduced. Serbian airstrike.
20004.1%3.9%3.4%President Bush takes office. Stock market crashes after NASDAQ reached all-time high of 5,048.62 in March.
20011.0%5.7%1.6%Recession. Bush tax cuts passed. 9/11 attacks. U.S. responded with War on Terror.
20021.8%6%2.4%Expansion. Federal budget returns to deficit.
20032.8%5.7%1.9%Iraq War begins.
20043.8%5.4%3.3%Expansion.
20053.4%4.9%3.4%Expansion.
20062.7%4.4%2.5%Expansion.
20071.8%5.0%4.1%EU overtook U.S. as world's largest economy. As banks stopped lending to each other, the economy started slowing down. The Fed lowered its lending rate, but banks hiked up the LIBOR rate out of fear. The minimum wage was raised to $5.85 an hour. 
2008-0.3%7.3%0.1%Congress raised the minimum wage to $6.55 an hour just months before Lehman Brother went bankrupt. That kicked off the 2008 financial crisis. The TARP bailout package prevented worse damage.
2009-2.8%9.9%2.7%Unemployment peaked at 10% in October, the first time it hit double digits since the 1982 recession. ARRA signed, ending Great Recession in July. The minimum wage was increased to $7.25 an hour. Unemployment benefits were extended.
20102.5%9.3%1.5%High unemployment lasted until July 2011, for 26 months of job losses. That wasn't as long as the 2001 recession, which had 29 months of job losses. Jobs increased in business services, healthcare, and education. Companies hired temp workers first, waiting until they were sure the economy was better. There were 516,000 jobs created in May 2010. But there were still 6.2 million long-term unemployed by December. Obama extended tax cuts and ended War in Iraq. 
20111.6%8.5%3.0%There were 5.6 million long-term unemployed, nearly half (42.5%) of the unemployed. Congress slowed growth with debt ceiling crisis. Osama bin Laden killed.
20122.2%7.9%1.7%Discouraged workers returned to the labor force, keeping the rate above 8% until right before the Presidential elections. Candidate MItt Romney falsely claimed that job creation should be 500,000 per month. That's only happened in nine months in the past 65 years. Mortgage rates sank to 200-year lows thanks to Fed Quantitative Easing. The threat of the fiscal cliff suppressed job growth for the rest of the year.
20131.7% 6.7%1.5%The stock market rose by nearly 30% as businesses reported strong earnings. But unemployment remained high. Why the disconnect? Companies achieved profitability by cutting costs because top-line revenue just wasn't there.Too few jobs lowered demand. Many workers left the labor force, reducing the unemployment rate.
20142.4% 5.6%0.8%Unemployment finally returned to pre-recession levels.
20152.6%  5.0%0.7%Unemployment fell to the natural rate of unemployment.

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