Inflation and Employment
Inflation and Employment
The world’s economy is in a constant growth and countries are doing their best to keep up with it. New technologies, green energy sources, and cheap labor help propel an economy in the right direction. However, it has its disadvantages towards the citizens; most are simple while others are quite severe. Inflation and employment move hand in hand with each entity affecting the other. The higher the inflation, the higher the rate of unemployment. Struggling countries are trying their level best to keep up with the economic changes by creating substantial jobs for its citizens. The toll is towards the citizens as the available jobs are either scarce or cannot meet their demands. The recent situation in Greece shows the extent of rising economic times on a nation. At times, the pull leads to unmanageable debts and defaulting by companies, industries, and institutions among others.
The paper looks into the relation between inflation and employment and various methods to study them. The main focus is showing how the two entities behave in different environments and the best way to control them. The labor market, demand pull and cost push play a part in controlling the relation between employment and inflation. These entities work independently in affecting the inflation and employment level. Moreover, there are certain levels which may cause an imbalance in the market and push people to their limits when it comes to fulfilling their needs. There are different phenomena designed by economists to gauge the relation between inflation and employment to the entities listed above as well as research methods associated with them. The paper provides an in depth analysis of each entity and how they affect inflation and employment rates in different states.
Labor market entails the number of available workers against the work available. It draws out a country’s ability to provide sufficient employment to its citizens (Author, 2016). In most cases, the available workers are more than the available jobs, implying that the rate of unemployment is high. There are very few economies with a balanced labor market because of the rate of inflation across the globe. At times, the labor market information is quite confusing to the readers or interpreters. However, it provides an overview of jobs and skills that employers are looking for. It helps the country and investors to gauge whether the economy is growing in the right way. It provides an overview of industries hiring, their location and best places to hire skillful workers. For instance, the Asian market has skillful labor market geared towards technology and manufacturing, making it an ideal place for technology companies.
Another factor of the labor market is that it helps in controlling the training and education for certain jobs. The government or industry can help its people in focusing on skills that provide better returns in future (Author, 2016). Apart from that, they can concentrate on a particular area of skill instead of generalizing on it. The increase in better skills is putting out certain kind of people for their lack of experience or knowledge. Education is constantly improving and making work easier and better for people. However, the lack of resources and skillful workers creates a division between people who want to work in certain industries. The government has better opportunities and factors that will guide the citizens on what the industry players need. The China market focuses itself on providing manufacturing needs to its clientele. Hence, most of the students focus their time and energy learning the new technologies (Pettinger, 2011). In return, the government provides them with greater opportunities and chances by creating healthy relations with investors and other nations.
The labor market information narrows down to supply and demand when it comes to inflation and employment. There are principle elements and respective operations when one seeks to define the relation between inflation and employment (Author, 2016). Demand entails the number of available jobs while supply entails the number of skillful workers towards a particular job. Factors that affect demand and supply include sector, time periods, geographic areas and industries. The advance in technology renders most of the skillful workers unemployed as the machines are taking over most of their jobs. Despite the effort by non-governmental organizations and unions in fighting for job security, it is quite hard for industries to forfeit their technology. Hence, the time-period factors come into play as they guide the government in focusing on certain sectors that require manpower like assembly.
Demand Pull
Demand pull is a common term used to describe the rise in price caused by an imbalance in supply and demand. Keynesian economics use the term often in their analysis of a market (Heakal, 2015). The price increase comes as a result of the aggregate demand outweighs the supply. Economists state that the availability of too many dollars against few goods. However, it provides a strong market for exploitation by suppliers as they try to win off the money brought forth by investors. Apart from that, a country can narrow down its resources on such industries or avenues as a way of providing employment to its citizens. However, the change in job perception, especially by young people, makes it hard for the governments to help out the unemployed (Heakal, 2015). For instance, the agricultural sector in most countries is promising towards those that seek to make a living from it. However, few of the young people find it as a lucrative income source because of its nature, making them opt for white collar jobs. In the long run, the country ends up with an influx of graduates with no jobs yet the agricultural sector provides a better opportunity for them.
There are four main sections that show the presence of demand pull: governments, households, foreign buyers and business. Each of these sections seeks to buy more output, but the economy does not meet their demand (Heakal, 2015). Hence, they compete against each other to purchase the available services and goods, which are inadequate, leading to uneven prices in the various sectors. The buyers keep bidding the prices higher causing a market inflation. The phenomenon is common in expanding economies, and it is commonly known as “too much money against too few goods.” There are various factors which affect the price pull in most industries. Economic dynamics causes the increase in aggregate demand. For instance, if a government increases its purchases, it will cause the prices of items to increase. The depreciation of currency has an effect on its exchange rate, which makes importation of goods to decrease while exportation increases (Heakal, 2015). Despite the favor on exportation, a country might lack the required goods or services to neutralize the exchange rate prices. The rapid increase in overseas market ignites the demand by foreigners. Lastly, the reduction of taxes by the government leads to increase in disposable income by most households. It results in a significant consumer spending which in turn affects the aggregate demand causing a demand-pull inflation.
Hence, the demand pull is as a result of increased demand which is faster than increased supply. In a situation where aggregate demand rises without a significant change in aggregate demand, the supplied quantity will increase. The rationale behind the effect is that aggregate demand requires a faster economic growth which will neutralize or overpower the aggregate supply. As companies and industries increase their production because of demand, the cost production increases evenly. In some instance, the companies pass on their higher production cost to consumers as a way of maintaining profit levels.
Cost Push
Cost push is the opposite of demand pull whereby there is a demand increase of certain goods against its availability. It is the common issue in most urban centers where demand for food products is quite high, yet the supply is low (Heakal, 2015). Therefore, the general price levels continue to rise, causing inflation in the market. Another reason for the inflation is the increase in raw materials and cost of wages. To keep up with the market, the prices of most commodities continue to rise. It benefits the suppliers as their goods gain in value though their raw materials and cost of production rise parallel to it. With the increase in production costs, companies struggle to maintain their profit margins since they have to maintain their amount of services and goods. The phenomenon leads to an increase in product cost.
As times progress, companies feel the need to increase wages for their employees in a bid to maintain them in their system. Though, there are other situations where an increase in wages comes as a result of changing economy and demands by the employees. Despite the situation, the companies have to compensate the increase by inflating the prices on its products (Heakal, 2015). Equivalently, their competitors will increase it marginally against them to decrease the price gap. In the long run, the common people feel the pinch and opt out of items that they do not require on a daily basis. Another factor that may lead to the increase in production cost is an increase of raw materials. It may result from scarcity or increase in importation costs, mostly caused by the depreciation of currency. A tax increase by governments might result in the significant rise especially towards the energy resources.
Conclusion
References
Heakal, R. (2015). Cost-Push Inflation Versus Demand-Pull Inflation. Retrieved from Investopedia: http://www.investopedia.com/articles/05/012005.asp
Pettinger, T. (2011, November 21). Trade-Off Between Unemployment and Inflation. Retrieved from Economics: http://www.economicshelp.org/blog/571/unemployment/trade-off-between-unemployment-and-inflation/
