Question

What is the connection between unemployment and inflation? What are these concepts?

What are the different types of unemployment? How do they affect the economy in terms of growth, labor force, and price of labor? Cite specific examples to support your response and what the recent rates of unemployment are. Investigate either a regional or state unemployment rate and compare it to the recent national unemployment statistics. Alternatively, discover how labor force participation, monthly net employment changes, total employment, or numbers of hours worked has varied over recent periods.

What is the relationship of the "price level" and "inflation"?

Who wins when inflation is high, moderate and low? Can negative inflation (deflation) help or hurt various economic agents in our society?

What are some good strategies for dealing with inflation that has adverse effects? What are some good strategies to take advantage of inflation?

(Do we have high or low inflation these days? Is that good or bad?)

Answer 1

Unemployment can also be mentioned as an individual looking for a job and is not able to find one.

Unemployment rate = the number of unemployed persons/labor force.

Inflation can be defined as the rate of increase in prices for goods and services. We use different measures to calculate inflation. Currently, the most used indicators are CPI (Consumer price index) and RPI (Retail price index). The following formula is used to calculate inflation.

Inflation rate = [(P2-P1) / P1] * 100

P1     =       Price for the first time period
P2     =       Price for second time period

The Phillips curve explains the short-run trade-off between inflation and unemployment. According to the Phillips curve, there is an inverse relationship between unemployment and inflation. This means that as unemployment increases in an economy, the inflation rate decreases.

Different types of unemployment are:

• Frictional Unemployment – This occurs when people are in between jobs. For example, a school-leaver may take some time to get his first job. There will always be some degree of frictional unemployment in an economy.
• Structural Unemployment– This is unemployment due to occupational or geographical immobilities. Often occurs after a structural change in the economy. For example, there may be jobs available in the service sector, but unemployed miners don’t have the relevant skills to be able to take the jobs.
• Voluntary unemployment. This occurs when people prefer to remain on benefits rather than take a job, i.e. the unemployed refuse a job offer. Some debate exists over the extent of voluntary unemployment. But, arguably high benefits may encourage some to stay on benefits rather than take low paid jobs. See: voluntary unemployment
• Seasonal Unemployment. Unemployment may be higher during certain periods (e.g. out of tourist season)
• Geographical Unemployment. This occurs when unemployment is concentrated in certain areas. geographical unemployment is often considered part of structural unemployment.

Unemployment is countercyclical i.e. it increases with low economic growth and decreases when the economy begins to grow. An example of this pattern is the global recession that began in 2008 and led to unemployment of more than 200 million individuals or 7 percent of the worldwide workforce. Labor force decreases when unemployment increases. Also, the price of labor increases with unemployment since there will less supply of labor during unemployment.

According to a recent NSSO Report on Unemployment. The overall unemployment rate in India is 6.1 percent. In urban areas, the unemployment rate is 7.8 percent, whereas the unemployment rate in rural areas is 5.3 percent. As per the current weekly status approach, the overall unemployment rate is 8.9 percent.