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%Market Crash
1931-6.4%15.9%-9.3%Dust Bowl
1932-12.9%23.6%-10.3%FDR and New Deal
1933-1.3%24.9%0.8%Depression started to lift, thanks to New Deal programs.
19375.1%14.3%2.9%Spending cuts
1938-3.3%19%-2.8%Minimum wage
19398.0%17.2%0%Drought ends
19408.8%14.6%0.7%U.S. began the draft
194117.7%9.9%9.9%U.S. entered WWII
194317.0%1.9%3.0%Germany, Italy surrendered
19448.0%1.2%2.3%Bretton Woods
1945-1.0%1.9%2.2%WW2 ended
1946-11.6%3.9%18.1%Employment Act
1947-1.1%3.9%8.8%Marshall Plan
19484.1%4%3.0%Truman reelected
1949-0.5%6.6%-2.1%Fair Deal. NATO.
19508.7%4.3%5.9%Expansion. Korean War began.
19534.7%4.5%0.7%Eisenhower took office. Korean War ended. Recession
1954-0.6%5%-0.7%Recession ended. Dow returned to 1929 level.
19557.1%4.2%0.4%Unemployment declined.
19562.1%4.2%3.0%Economy slowed.
1957.12%5.2%2.9%Recession began, as Fed panicked over inflation and raised interest rates.
19596.9%5.3%1.7%Expansion. Fed raised rate to 4%.
19602.6%6.6%1.4%Recession. Fed lowered rate to 1.98%. 
19612.6%6%0.7%JFK took office. Bay of Pigs invasion.
19626.1%5.5%1.3%Cuban Missile Crisis.
19634.4%5.5%1.6%JFK assassinated. LBJ took office. 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%.
19684.9%3.4%4.7%Expansion. Fed raised rate to 6%.
19693.1%3.5%6.2%Nixon took office.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. Emergency Employment Act.
19725.2%5.2%3.4%Watergate scandal begins.
19735.6%4.9%8.7%Nixon signed Comprehensive Employment Training Act, ended Vietnam War, and took dollar off gold standard. Created inflation. Fed raised rates to 11%.
1974-0.5%7.2%12.3%Stagflation. Fed raised rate to 13% to stem inflation, further slowing economy.Nixon resigned. Ford took office.
1975-0.2%8.2%6.9%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%, then lowered it to 8%, to fight recession. When it ended, Fed raised rate to 20%
19812.6%8.5%8.9%Reagan took office. Fed raised rate to 20% in Jan. Lowered it to 16% in April. Raised it to 20% in May reigniting recession. Lowered rate to 12% by Dec.
1982-1.9%10.8%3.8%Job Training Partnership Act signed. Recession ended when Fed lowered rates to 8.5%. Garn-St.Germain Act.
19834.6%8.3%3.8%Reagan increased military spending by 35%.
19847.3%7.3%3.9%Deficit spending
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%1989 Savings and Loan Crisis. Fed lowered rate to 8.25%.
19901.9%6.3%6.1%Expansion hit peak in July. 
1991-0.1%7.3%3.1%Soviet Union collapsed. Desert Storm launched. Fed lowered rate to 4%.
19923.6%7.4%2.9%Fed lowered rate to 3%.Bush 41 signed NAFTA..
19932.7%6.5%2.7%Clinton takes office. Signed NAFTA into law. EU established.
19944.0%5.5%2.7%School to Work Act to train high school grads.
19984.4%4.4%1.6%Clinton impeached. Federal budget created a surplus.
19994.8%4%2.7%Euro introduced. Serbian airstrike.
20004.1%3.9%3.4%Bush 43 takes office. Stock market crashed after NASDAQ hit record 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.
20071.8%5.0%4.1%EU became world's largest economy. LIBOR exceeded Fed funds rate.
2008-0.3%7.3%0.1%Minimum wage raised to $6.55/ hour. Lehman Brothers bankruptcy. 2008 financial crisis led to TARP bailout.
2009-2.8%9.9%2.7%Unemployment hit 10% in October. ARRA ended Recession in July. Minimum wage raised to $7.25/hour. Unemployment benefits 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. Obama extended tax cuts. Ended War in Iraq. 
20111.6%8.5%3.0%Nearly half of unemployed are long term.. Debt ceiling crisis. Osama bin Laden killed.
20122.2%7.9%1.7%Workers returned to labor force. Kept rate above 8% until Presidential elections. QE sent interest rates to 200-year lows thanks to .Fiscal cliff suppressed job growth.
20131.7% 6.7%1.5%Stock market rose 30%. Unemployment remained high. 
20142.4% 5.6%0.8%Unemployment returned to pre-recession levels.
20152.6%  5.0%0.7%Unemployment fell to the natural rate of unemployment.


* What Happened in Detail

Prior to 1929, the growth of the Roaring Twenties was high, so unemployment was low. However, the stock market crash in October kicked off the Great Depression. In 1930, Congress passed the Smoot-Hawley tariff to protect U.S. jobs. Instead, world trade fell 65% as trading partners retaliated. Droughts created the Dust Bowl, in 1931, sending farmers off their land. The Fed raised interest rates to protect the dollar's value, further slowing growth.

When FDR took office in 1932, Congress passed the New Deal. The Depression started to lift until 1937. Congress, fearing a budget deficit, cut spending, plunging the nation back into Depression. In 1938, No more New Deal legislation was passed. The U.S. minimum wage was established. Unemployment rose briefly. In 1939, Dust Bowl drought finally ended. Hitler invaded Poland. U.S. began spending again to build up military as Europe entered WWII. Massive government spending for World War II finally ended the Depression.

In 1944, the Bretton-Woods Agreement set up the dollar as the global currency. It replaced the gold standard, which was dropped as countries spent to pay for the war effort. In 1945, Truman became President, dropped the nuclear bomb in August, ending WWII. Unemployment fell to lowest level ever.

In 1946, the Employment Act was signed. It required the Federal government to manage unemployment. Despite a huge cutback in military spending, businesses grew strongly. In 1947, the Marshall Plan and Truman Doctrine boosted business growth to repair Europe. Cold War began.

In 1957, the European Economic Community launched. Soviets started space race with Sputnik.  In 1960, the FDA approved the birth control pill approved. That allowed women more choice to enter workforce. The labor force participation rate started rising, from 60% in 1963 to 67.3% in 2000.

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