How Unemployment Tracks Recessions
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 24.9% 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. In 2020, it reached double digits again at 14.7% in April when the U.S. was dealing with a pandemic and recession.
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 typically falls during the expansion phase of the business cycle. The lowest unemployment rate in modern history was 1.2% in 1944.
Us Unemployment Rate History
Kimberly Amadeo is an expert on U.S. and world economies and investing, with over 20 years of experience in economic analysis and business strategy. She is the President of the economic website World Money Watch. As a writer for The Balance, Kimberly provides insight on the state of the present-day economy, as well as past events that have had a lasting impact.
Erika Rasure, is the Founder of Crypto Goddess, the first learning community curated for women to learn how to invest their moneyand themselvesin crypto, blockchain, and the future of finance and digital assets. She is a financial therapist and is globally-recognized as a leading personal finance and cryptocurrency subject matter expert and educator.
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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. The rate also 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 over time and how it’s compared to gross domestic product and inflation.
Unemployment In The United States
Unemployment in the United States discusses the causes and measures of U.S. unemployment and strategies for reducing it. Job creation and unemployment are affected by factors such as economic conditions, global competition, education, automation, and demographics. These factors can affect the number of workers, the duration of unemployment, and wage levels.
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The Impact Of Lower Worker Reallocation Rates
Low rates of worker reallocation could have important implications for unemployment dynamics in the near term. In theory, the more labor market churning there is in an economy, the faster the unemployment rate returns to its trend. Intuitively, as unemployed workers start finding jobs at a higher rate, unemployment will decline faster toward its trend. The same is true when unemployment is lower than its trend level.
To understand the impact of worker reallocation on the rate of the decline in the unemployment rate, we use our model to generate simulations of the adjustment to trend unemployment based on two different starting points. In the baseline case, we start from our current low estimates of job-finding and separation rate trends. In the alternative case, we start from the job-finding rate trend that was observed in the 1980s and a correspondingly high separation rate trendthis results in the same implied unemployment rate trend as the baseline case but the labor reallocation rate is higher. Figure 3 shows the results of this experiment. The conclusion is clear the current worker reallocation rate trend predicts a slower decline in the unemployment rate. This difference could be as high as 1.3 percentage points along the transition path.
Great Recession Unemployment Statistics
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There were ten recessions between 1948 and 2011.
One of the more recent recessions began in December 2007 and ended in June 2009, known as the Great Recession. During this time, the U.S. GDP fell to 4.3%, unemployment peaked at 10.6% in January 2010, and the number of unemployed increased by 8.8 million.
This period also saw much higher levels of unemployment that persisted longer than in any other, dating back to the late 1940s.
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Mens unemployment rates during the Great Recession were generally higher than womens.
Beginning in the early 1980s, unemployment among men outpaced unemployed women. And this trend continued during the Great Recession when mens unemployment rates were more than a whole percentage point higher than womens.
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Black workers experienced the highest peak unemployment rates compared to other races during the Great Recession, although there was almost a six-point difference between Black men and women.
Here are the Great Recession peak unemployment numbers by gender and race:
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Peak unemployment during the Great Recession was highest among younger demographics.
Great Recession peak unemployment, by age:
Individuals with less education experienced higher unemployment rates during the Great Recession than those with more education.
Great Recession peak unemployment, by education:
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Less than high school education: 17.9%
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High school graduate: 11.9%
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Bachelors degree: 5.3%
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List Of Sovereign States By Unemployment Rate
This is a list of countries by unemployment rate. Methods of calculation and presentation of unemployment rate vary from country to country.Some countries count insured unemployed only, some count those in receipt of welfare benefit only, some count the disabled and other permanently unemployable people, some countries count those who choose not to work, supported by their spouses and caring for a family, some count students at college and so on. There may also be differences in the minimum requirements and some consider people employed even if only marginally associated with employment market .
There can be differences in the age limit. For example, Eurostat uses 15 to 74 years old when calculating unemployment rate, and the Bureau of Labor Statistics uses anyone 16 years of age or older . Unemployment rates are often seasonally adjusted to avoid variations that depend on time of year.Employment rate as a percentage of total population in working age is sometimes used instead of unemployment rate.
The Outlook For Stocks
7. “I think we’ve seen the low, either in June or October. Even a mild recession would not cause earnings to go down enough to cause a new low in the stock market.”
8. “When the Fed gets it and they will get it next year I think we’ve got a good 10%, 15% rally going for the stock market.”
9. “People say that this is the most anticipated recession ever. When too many people forecast something, often that drives the market below its fundamental values. A lot of bad news is now factored into prices. The surprises are more likely on the upside than the downside.”
10. “I’ve never seen so much bearishness. That excess of bearishness means this a good opportunity for investors.”
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Jobs Created By Presidential Term
Job creation is reported monthly and receives significant media attention, as a proxy for the overall health of the economy. Comparing job creation by President involves determining which starting and ending month to use, as recent Presidents typically begin in January, the fourth month into the last fiscal year budgeted by their predecessor. Journalist Glenn Kessler of The Washington Post explained in 2020 that economists debate which month to use as the base for counting job creation, between either January of the first term or February. The Washington Post uses the February jobs level as the starting point. For example, for President Obama, the computation takes the 145.815 million jobs of February 2017 and subtracts the 133.312 million jobs of February 2009 to arrive at a 12.503 million job creation figure. Using this method, the five Presidents with the most job gains were: Bill Clinton 22.745 Ronald Reagan 16.322 Barack Obama 12.503 Lyndon B. Johnson 12.338 and Jimmy Carter 10.117. Four of the top five were Democrats.
Writing in The New York Times, Steven Rattner compared job creation in the last 35 months under President Obama with the first 35 months of President Trump . President Obama added 227,000 jobs/month on average versus 191,000 jobs/month for Trump, nearly 20% more. The unemployment rate fell by 2 percentage points under Obama versus 1.2 points under Trump.
Us Unemployment Is At Its Highest Rate Since The Great Depression At 147%with 205 Million More Jobs Lost In April
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The United States Department of Labor reported a sobering, dishearteningyet expectedrise in unemployment not seen since the Great Depression in the April jobs report. Roughly 20.5 million Americans lost their jobs last month. The unemployment rate, which was at about 3.5% in February, now stands at an uncomfortably high 14.7%. The number of Americans, in their prime-working years holding a job, fell to only 69.7%. This hasnt been seen since November 1975.
The continued job-loss catastrophe plagued all sectors. Jobs in the leisure and hospitality industries were hit the hardest with 7.6 million job losses. This was followed by retail and health, each losing 2.1 million. Manufacturing, once the backbone of the U.S., lost 1.3 million jobs. Government workers werent immune to the negative impact, as 980,000 workers lost their jobs.
According to the Associated Press, The jump in the unemployment rate didnt capture the full devastation wrought by the business shutdowns. The Labor Department said its survey-takers erroneously classified millions of Americans as employed in April even though their employers have closed down. These people should have been classified as on temporary layoff and therefore unemployed. If they had been counted correctly, the unemployment rate would have been nearly 20%, the government said.
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Employment Policies And The Minimum Wage
Advocates of raising the minimum wage assert this would provide households with more money to spend, while opponents recognize the impact this has on businesses, especially small businesses, ability to pay additional workers. Critics argue raising employment costs deters hiring. During 2009, the minimum wage was $7.25 per hour, or $15,000 per year, below poverty level for some families. The New York Times editorial board wrote in August 2013: As measured by the federal minimum wage, currently $7.25 an hour, low-paid work in America is lower paid today than at any time in modern memory. If the minimum wage had kept pace with inflation or average wages over the past nearly 50 years, it would be about $10 an hour if it had kept pace with the growth in average labor productivity, it would be about $17 an hour.
The Economist wrote in December 2013: A minimum wage, providing it is not set too high, could thus boost pay with no ill effects on jobsAmericas federal minimum wage, at 38% of median income, is one of the rich worlds lowest. Some studies find no harm to employment from federal or state minimum wages, others see a small one, but none finds any serious damage.
The U.S. minimum wage was last raised to $7.25 per hour in July 2009. As of December 2013, there were 21 states with minimum wages above the Federal minimum, with the State of Washington the highest at $9.32. Ten states index their minimum wage to inflation.
Unemployment Parallel With A Rich Economy
Of course, it’s possible to have both low unemployment and a rich economy. This combination is seen in Qatar. According to the World Bank, GDP per capita in Qatar was $61,276 in 2021. That wealth helps its standing in the above listing, as a country’s unemployment rate only factors in those actively looking for work. The working-age child of rich parents may feel less pressure to earn money and be more inclined to spend it.
Qatar’s economy is driven by oil and natural gas, hence its extreme wealth, though it’s been making a sustained push to diversify into financial services, construction, restaurants, and hotels.
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Effects On Health And Mortality
Unemployment can have adverse health effects. One study indicated that a 1% increase in the unemployment rate can increase mortality among working-aged males by 6%. Similar effects were not noted for women or the elderly, who had lower workforce attachment. The mortality increase was mainly driven by circulatory health issues . Another study concluded that: Losing a job because of an establishment closure increased the odds of fair or poor health by 54%, and among respondents with no preexisting health conditions, it increased the odds of a new likely health condition by 83%. This suggests that there are true health costs to job loss, beyond sicker people being more likely to lose their jobs. Extended job loss can add the equivalent of ten years to a persons age.
Studies have also indicated that worsening economic conditions can be associated with lower mortality across the entire economy, with slightly lower mortality in the much larger employed group offsetting higher mortality in the unemployed group. For example, recessions might include fewer drivers on the road, reducing traffic fatalities and pollution.
Persons With Multiple Jobs
The BLS reported that in 2017, there were approximately 7.5 million persons age 16 and over working multiple jobs, about 4.9% of the population. This was relatively unchanged from 2016. About 4 million worked a full-time primary job and part-time secondary job. A 2020 study based on a Census Bureau survey estimated a higher share of multiple jobholders, with 7.8% of persons in the U.S. working multiple jobs as of 2018 the study found that this percentage has been trending upward during the past twenty years and that earnings from second jobs are, on average, 27.8% of a multiple jobholder’s earnings.
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Late 2019/early 2020 Unemployment Statistics
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The economy had also grown for 126 months, which was the longest economic expansion on record until the COVID-19 pandemic struck.
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In 2019, the unemployment rate hit a 50-year low.
5.8 million people were unemployed during the fourth quarter of 2019, which was a reduction of 341,000 compared to one year earlier. Over this same time, the national unemployment rate fell to 3.5%, the lowest jobless rate since 1969.
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However, labor force participation rates were stuck at their lowest level since 1977.
Despite record-low unemployment, the labor force participation rate remained at 62.9% during this time, near its lowest level since 1977. This was primarily caused by thousands of individuals who gave up actively looking for jobs and were therefore no longer tabulated as unemployed.
How Unemployment Is Measured
The U.S. governments monthly Employment Report is based on two surveys. One is the Establishment Report, which asks a random sample of employers how many people are on their payroll. The second is the Current Population Survey , in which approximately 60,000 households are asked whether their members are working or looking for work.
The responses help the BLS produce an estimate of the number of employed Americans vs. the number of unemployed people. Being unemployed is defined as those who do not have a job, have actively looked for work in the prior four weeks and are available to work. Also listed as unemployed are laid-off workers waiting to be called back to the same job.
The BLS does not include all categories of the unemployed in its official unemployment rate.
In fact, it calculates six separate measures of unemployment, classified as U1 through U6:
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History Of Us Unemployment
The U.S. government began tracking unemployment officially in the 1950s, but estimates of previous unemployment rates are not difficult to ascertain. The Great Depression of the early 1930s had an unemployment rate of 23.6 percent the highest in modern times. The countrys lowest rate 1.2 percent came in 1944 when millions of men were in uniform and the wartime economy was in overdrive. The lowest post-war rate was 2.9 percent in 1953.
Since 1948, the end of the postwar period, the United States has experienced 11 recessions. Over that span, the federal government has employed various methods to push back unemployment caused by these cyclical contractions of the economy.
For example:
- The Federal Aid Highway Act, which authorized the construction of the Interstate Highway System, putting thousands to work, helped President Dwight Eisenhower combat the recession of 1957 and its unemployment rate of 6.8 percent.
- President John F. Kennedy cut taxes and expanded Social Security and unemployment benefits to counter a brief recession at the beginning of his term. The rate went from 6.7 percent in 1961 to 5.5 percent in 1962.
In 2011, President Barack Obamas administration proposed the American Jobs Act, but it has not been passed by Congress. Some economists believe that had it been enacted, it could have pushed the unemployment rate below 7 percent. As always, when it comes to American fiscal policy, there is no agreement on which plan is best.
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Illinois Unemployment Rate Is Worst In Us
Illinois added 14,900 jobs in September, but its unemployment rate was the highest in the nation. Inflation and growing recession fears could hit the state harder than most.
Despite sustained job growth recently, the unemployment rate in Illinois is now the worst in the nation.
Illinois unemployment rate remains 4.5%, now the highest in the nation and a full percentage point higher than the national rate of 3.5%.
The states sluggish recovery from the pandemic is putting the state in a precarious position as economic uncertainty and recession fears continue to increase. Illinoisans suffered more than most Americans during the Great Recession. Because the state still hasnt recovered from the pandemic, it remains vulnerable to suffering more severely than other states should a recession occur.
Illinois has a tendency to struggle to recover from economic downturns compared to the rest of the nation, as it did after the Great Recession and is doing now after the pandemic. During the Great Recession from 2007 to 2009, Illinois economy shrank by nearly 5% compared to a 3.2% drop in the rest of the nation. Then it lagged the recovery from 2009 to 2017, growing by 10.6% while the rest of the nation grew by 17.1%.
Several sectors shed jobs. The leisure and hospitality sector lost 1,500 jobs for the month the information sector dropped 600 jobs and manufacturing lost 100 jobs.
Mining payrolls remained unchanged for the sixth consecutive month.
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