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 are caused by slow economic growth. It's measured by U.S. gross domestic product. As GDP 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.

When that many people are unemployed, the economy loses one of its key drivers of growth. That's because less consumer spending from unemployed workers reduces business revenue. That 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 percent or more. The Federal Reserve will use expansionary monetary policy by 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 percent. Even when the unemployment rate is 4 percent, it's difficult for companies to expand because they have a hard time finding good workers.

The Bureau of Labor Statistics has measured unemployment 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 peacetime production slowdowns.

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 after economic growth improves. Companies 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. 

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%Hoover's tax hikes
1933-1.3%24.9%0.8%FDR's New Deal
193410.8%21.7%1.5%Depression eased thanks to New Deal.
19375.1%14.3%2.9%Spending cuts
1938-3.3%19%-2.8%Minimum wage
19398.0%17.2%0%Drought ended
19408.8%14.6%0.7%U.S. began the draft
194117.7%9.9%9.9%Pearl Harbor
194218.9%4.7%9.0%Defense tripled
194317.0%1.9%3.0%Germany surrendered
19448.0%1.2%2.3%Bretton Woods
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%Korean War began
19534.7%4.5%0.7%Korean War ended
1954-0.6%5%-0.7%Dow returned to 1929 level
19557.1%4.2%0.4%Unemployment fell
19562.1%4.2%3.0%Economy slowed
19612.6%6%0.7%JFK took office 
19626.1%5.5%1.3%Cuban Missile Crisis
19634.4%5.5%1.6%LBJ took office
19645.8%5%1.0%Tax cut
19656.5%4%1.9%Vietnam War
19693.1%3.5%6.2%Nixon took office
19713.3%6%3.3%Emergency Employment Act. Wage-price controls
19735.6%4.9%8.7%CETA. Gold standard, Vietnam War ended
1975-0.2%8.2%6.9%Recession ended.
19774.6%6.4%6.7%Carter took office.
19785.6%6%9.0%Fed raised rate to 20% to stop inflation
19812.6%8.5%8.9%Reagan tax cuts 
1982-1.9%10.8%3.8%Job Act. Garn-St.Germain Act.
19834.6%8.3%3.8%Reagan increased military spending
19863.5%6.6%1.1%Tax cuts
19873.5%5.7%4.4%Black Monday
19884.2%5.3%4.4%Fed raised rate
19893.7%5.4%4.6%S&L Crisis
1991-0.1%7.3%3.1%USSR ended. Desert Storm
19923.6%7.4%2.9%Bush 41 approved NAFTA draft.
19932.7%6.5%2.7%Balanced Budget Act
19944.0%5.5%2.7%School to Work Act 
19963.8%5.4%3.3%Welfare reform
19984.4%4.4%1.6%LTCM crisis
19994.8%4%2.7%Euro. Serbian airstrike
20004.1%3.9%3.4%NASDAQ hit record high.
20011.0%5.7%1.6%Bush tax cuts. 9/11 attacks
20021.8%6%2.4%War on Terror
20053.4%4.9%3.4%Bankruptcy ActKatrina
20071.8%5.0%4.1%EU became #1 economy. 
2008-0.3%7.3%0.1%Min. wage = $6.55/ hour. Financial crisis
2009-2.8%9.9%2.7%ARRA. Min. wage = $7.25/hour. Unemployment benefits extended
20102.5%9.3%1.5%Obama tax cuts. Iraq War ended
20111.6%8.5%3.0%26 months of job losses by July. Debt ceiling crisis. 
20122.2%7.9%1.7%QEInterest rates = 200-year lowsFiscal cliff.
20131.7% 6.7%1.5%Stocks up 30%. Long term=50% of unemployed. 
20142.4% 5.6%0.8%Unemployment at 2007 levels.
20152.6%  5.0%0.7%Unemployment at natural rate


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