What Is a Benchmark Rate of Unemployment?
Policymakers monitor the unemployment rate closely, but the headline number alone does not reveal whether the labor market is running hot or cold. That assessment requires a benchmark.
Two complementary benchmarks emerge depending on the time horizon of interest. The longer-run benchmark reflects the unemployment rate expected to prevail after all cyclical shocks have dissipated. It moves slowly, driven by demographics and structural features of the labor market such as the age composition of the workforce and job-matching efficiency. The stable-price benchmark rate answers a different question: at what level of unemployment would inflation neither accelerate nor decelerate, given current economic conditions? This rate can shift quickly in response to large shocks.
These two benchmarks typically coincide, as they did at roughly 4 percent in late 2019. They can diverge sharply, however, when large disturbances alter the short-run relationship between unemployment and inflation without changing the economy's structural underpinnings.
The chart below presents both benchmarks for the United States and, using the same framework applied to Canadian data, for Canada. Use the toggle to switch between countries. Canada's benchmarks sit well above the U.S. levels, reflecting structural differences between the two labor markets.
Reference: Crump, Nekarda, and Petrosky-Nadeau, "Unemployment Rate Benchmarks," Finance and Economics Discussion Series 2020-072, 2020.
Estimates of Benchmark Rates of Unemployment
Quarterly estimates, 1985:Q1 to 2026:Q1
Source: Bok, Crump, Nekarda, and Petrosky-Nadeau, "Estimating Natural Rates of Unemployment: A Primer" (2023), updated through 2026:Q1. CBO NROU from the Congressional Budget Office.
Download Data (CSV) · includes United States and Canada, with suggested citation in the file header.
Breakeven Payroll Growth
How many jobs does the economy need to create each month to keep the unemployment rate from rising? The answer depends almost entirely on how fast the labor force is growing. If the working-age population is expanding rapidly, the economy needs proportionally more job creation just to absorb new entrants and hold unemployment steady.
This "breakeven" pace of payroll growth can be expressed simply: multiply trend labor force growth by the share of the labor force that is employed. When actual job creation exceeds breakeven, unemployment tends to fall; when it falls short, unemployment tends to rise.
Two complementary horizons are informative. The long-run breakeven captures the slow-moving demographic forces that determine how many workers the economy must absorb over decades. The short-run breakeven captures medium-frequency variation in labor force growth driven by factors such as immigration flows, shifts in labor force participation, and changes in population growth that operate at business-cycle and slightly longer frequencies.
The same framework applies to Canada. Use the toggle above the chart to switch between the two countries. Because Canada's labor force is roughly one-seventh the size of the U.S. labor force, its breakeven pace is correspondingly smaller in absolute terms; comparing actual job creation to the breakeven line within each country is more informative than comparing the levels across countries. For Canada, the actual pace of hiring is measured by establishment-survey employment (the Survey of Employment, Payrolls and Hours), the closest analogue to U.S. nonfarm payrolls.
Reference: Petrosky-Nadeau and Stewart, "Breakeven Employment Growth" FRBSF Economic Letter 2024-18, 2024.
Estimates of Breakeven Payroll Growth
Monthly, January 2022 to April 2026
Source: BLS via FRED and author's calculations. Breakeven payroll growth based on Petrosky-Nadeau and Stewart (2024). Last updated: May 2026. Payroll bars clipped at ±500K for readability.
Download Data (CSV) · includes United States and Canada, with suggested citation in the file header.