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Unemployment Rate

The unemployment rate represents the percentage of workers who are unemployed and actively looking for a job. In May, the Austin-Round Rock metro’s jobless rate decreased to 2.2%, dropping to a 20-year low. Texas’ seasonally adjusted unemployment rate set an all-time low of 3.5% in May. As a frame of reference, U.S. unemployment peaked around 10% following the 2008-09 financial crisis. A falling unemployment rate can be a sign that the economy is heating up. During times of decreasing unemployment, new jobs are created and people previously unemployed have higher consumer buying power, which further fuels the economy. A virtuous cycle.


One may come to the natural conclusion that in a perfect world the economy would reach a 0% unemployment rate, in which all people eligible to work can and do find a job and we live happily ever after. However, we do not live in a perfect world and, because of the imperfections and inefficiencies that exist in the market, the Federal Reserve and economists generally suggest the ideal unemployment rate sits somewhere around 5%. The 5% unemployment rate figure is derived from the Fed’s mandate to achieve stable prices, which occurs around 2% inflation. A low unemployment rate tends to lead to wage inflation, inefficiencies in the labor market, and price inflation. When the available labor force is too small, employers are forced to raise wages in order to attract and maintain talent or, if an employer doesn’t have the necessary funds, dip into a less than ideal work pool, reducing productivity. Case in point- Austin’s construction labor market is suffering from a classic case of too much demand and too little supply. The local pool of skilled construction workers is stretched too thin, resulting in increased construction costs, delayed projects, and, in some cases, low quality work.

Austin’s unemployment rate has remained below 5% since 2014 and continues to fall. According to Workforce Solutions, the governing body for the regional workforce system, there are around 50K open job opportunities in Austin and around 27K residents seeking employment. The good news is that Austin’s net migration remains at around 100 new residents per day, which should help to fill those jobs and continue to propagate the city’s growth.

A decreasing unemployment rate is a great sign for a growing economy, but it is not without some undesirable side effects.

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