cyclical unemployment. Early in the decade, the
Federal Reserve attempted to slow the growth of the
money supply in order to reduce the rate of infla-
tion. This decision caused a decline in economic ac-
tivity and resulted in two recessions spanning the
period from 1980 to 1982. As a result, the number of
available jobs decreased, increasing cyclical unem-
ployment.
The early 1980’s also witnessed an increase in the
value of the dollar relative to the currencies of other
countries. Economic policies implemented under
the Ronald Reagan administration, often referred to
as “Reaganomics,” included tax cuts and increased
defense spending. These policies led to increased
borrowing by the federal government, which, com-
bined with the slowing growth of the money supply,
raised interest rates and, in the process, the value of
the dollar. The increased value of the dollar made it
more difficult for U.S. producers to sell their prod-
ucts in other countries, while the relatively low value
of foreign currency made it easier for foreign pro-
ducers to sell their producets in the United States.
Not only did this contribute to a rise in cyclical un-
employment, but it also increased structural unem-
ployment, as many manufacturing jobs permanently
moved to other countries, eliminating the need in
the United States for those skills possessed by many
manufacturing workers.
As the economy emerged from the recession that
ended in 1982, inflation came under control and the
Federal Reserve allowed the money supply to grow
at a faster rate. As a result, the unemployment rate
began to fall from its high of 11.4 percent in January,
1983, and by 1988 it had settled at 5 to 6 percent.
Many economists see that range as being within the
range of the “natural” rate of unemployment, that is,
the rate at which only frictional and structural un-
employment exist. As the value of the dollar began
to fall relative to other currencies over the latter part
of the decade, U.S. firms became more competitive
relative to the rest of the world. The expansion in
economic activity eliminated cyclical unemployment.
Impact High unemployment imposes a burden
on both individuals and society. Individuals lose a
major source of income, and society loses the output
that could have been produced. In addition, the
high unemployment of the early 1980’s, coupled
with shrinking union membership accompanying
the decline of manufacturing jobs, reduced the bar-
gaining power of labor. Although policies were im-
plemented that cut the unemployment rate through
the remaining part of the decade, the fear of unem-
ployment tended to keep wage demands relatively
modest. As cyclical unemployment decreased, more-
over, structural unemployment (which results largely
from inadequate education and training) became a
greater source of worry. When a federal commission
publishedA Nation at Riskin 1983, Americans’ atten-
tion was focused on the importance of education to
sustain the long-term health of the economy.
Further Reading
Brenner, Robert.The Boom and the Bubble: The U.S. in
the World Economy. London: Verso, 2002. Wonder-
ful analysis of the impact of globalization on the
U.S. economy since the early 1970’s and its effect
on unemployment in the 1980’s.
French, Michael.U.S. Economic Histor y Since 1945.
Manchester, England: Manchester University
Press, 1997. Concise overview of American socio-
economic history since World War II; puts the
events of the 1980’s into a larger context.
Heilbroner, Robert, and Lester Thurow.Economics
Explained. New York: Touchstone, 1998. Useful
overview of key economic concepts such as unem-
ployment, inflation, and globalization and how
those phenomena have affected society.
Randall Hannum1000 Unemployment in the United States The Eighties in America
U.S. Unemployment Rates,
1980-1989Year Unemployment %
1980 7.1
1981 7.6
1982 9.7
1983 9.6
1984 7.5
1985 7.1
1986 7.0
1987 6.2
1988 5.5
1989 5.3Source:Department of Labor, Bureau of Labor Statistics,
Local Area Unemployment Statistics, March, 2005.