US & World Economies US Economy Unemployment How Is Unemployment Controlled? By Kimberly Amadeo Updated on April 27, 2022 Reviewed by Erika Rasure Reviewed by Erika Rasure Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest. learn about our financial review board In This Article View All In This Article The Federal Reserve and Unemployment Expanding Fiscal Policy to Control Unemployment Frictional Unemployment When Unemployment Falls Too Low Frequently Asked Questions (FAQs) Photo: Drew Angerer / Getty Images Controlling unemployment depends on the type of unemployment that is trying to be controlled. People usually only ask this question when cyclical unemployment drives the unemployment rate above 7% or 8%. Cyclical unemployment is the result of the contraction phase of the business cycle, which usually causes a recession. The Federal Reserve and Unemployment When a country slips into recession the government—working through the Federal Reserve—works to reduce unemployment by boosting economic growth. The primary method used is expansionary monetary policy. During an expansionary policy, the Federal Reserve eases monetary policy by reducing the federal funds rate and buying U.S. Treasury and mortgage-backed securities on the open market, which increases the supply of money in the economy. Collectively, these tactics are designed to reduce interest rates across the yield curve, which spurs businesses to borrow money to buy capital equipment and hire more workers. Low-interest rates also tend to boost the housing market, spur auto sales, and increase personal consumption spending. Expanding Fiscal Policy to Control Unemployment The second way the government reduces unemployment is through fiscal policy. Using the expansion of fiscal policy, the president and Congress create jobs by increasing spending on government projects. Good examples are the New Deal and the 2009 Economic Stimulus Program. The policy can also give people more income to spend by cutting taxes. Examples of those are the Bush tax cuts in 2001 (EGTRRA) and 2003 (JGTRRA). In 2010, the Obama tax cuts extended those with modifications. This stimulates spending just like an interest rate decrease. There are also many things you can do to protect yourself from unemployment. A higher-level degree or advanced training for an in-demand occupation is a good start. You should also keep finding ways to increase your competitive advantage throughout your career. Frictional Unemployment A certain amount of unemployment is not controllable since, at any given point, people will be between jobs. This concept is known as frictional unemployment, and it's actually healthy for an economy. Frictional unemployment allows people to feel free enough to quit a job so they can look for a better one. That means both employers and employees will find a good fit and be more productive. When Unemployment Falls Too Low If unemployment is too low, then the economy is considered to be over-heated. At that point, inflation becomes more of a concern. An unemployment rate below 4% is considered "full" employment. In fact, a certain amount of unemployment is factored into any attempt to control inflation. Although economists don’t agree on specifics, it is widely accepted that a certain number of jobs must be lost to control each tenth of a percentage point of inflation. Structural unemployment is when there are jobs available, but the existing workers don't have the skills to fill those jobs. It can happen when technology changes the nature of the work itself. For example, personal computers replaced stenographers and typists, and in Silicon Valley, tech companies have to look to India to find enough programmers to fill their needs. Frequently Asked Questions (FAQs) What states have the highest unemployment rates? Unemployment rates fluctuate based on a number of factors, but two years after the COVID pandemic started, New Mexico had the highest unemployment rate, followed by Nevada, Alaska, Pennsylvania, and California. How can I get help if I am unemployed but want a job? Your state's unemployment division can help you find unemployment benefits, jobs, and job training if you qualify for any of these programs. One good place to start is the U.S. government's unemployment assistance portal at USA.gov. Who is considered unemployed? According to the U.S. Bureau of Labor statistics, people are counted as unemployed if they do not have a job but are willing and able to work and have looked for job in the past four weeks without finding one. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Congressional Research Service. “Introduction to U.S. Economy: Unemployment,” Page 2. Board of Governors of the Federal Reserve System. “How Does Monetary Policy Influence Inflation and Employment?” Congress.gov. “H.R.4853 - Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.” Corporate Finance Institute. “What Is Frictional Unemployment?” Center on Budget and Policy Priorities. “The Federal Job Guarantee - A Policy to Achieve Permanent Full Employment.” Corporate Finance Institute. “Structural Unemployment.” Bureau of Labor Statistics. "Unemployment Rates for States." USA.gov. "Unemployment Help." Bureau of Labor Statistics. 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