The Relationship Between Inflation And Unemployment

The economy of a major society, such as the United States of America, is studied by some of the most advanced minds on the planet. The relationship between inflation and unemployment has been studied by many economists for a long time now. Keeping these two topics at a good level is necessary to the health of the economy and the society. And while this might sound easy to do. This is easier said than done.

Full employment is considered to be somewhere in between 45 % and 6%, rather than what a lot of people like to think: that it is 0%. But it is actually impossible to ever have 0% full employment as there will always be both structural and frictional unemployment. Structural unemployment is what results from workers not having the skills needed to have long term employment. But on the other hand, frictional unemployment is when someone is between jobs and someone who has just started looking for a job. Frictional unemployment is also unavoidable as it results from workers searching for suitable jobs, and work firms searching for suitable workers. Because both of these will always exist, there is not a possibility of 0% unemployment. The balance between these is referred to as the natural rate of unemployment.

There are many other types of unemployment, such as: Demand Deficient Unemployment, Seasonal Unemployment, Classical Unemployment, and Technological Unemployment.

Demand deficient unemployment occurs when there is insufficient demand in the economy to keep up full employment. In a recession consumers will be buying fewer goods and services.

Seasonal Unemployment is caused to people who work for something that is restricted to a particular time in a year. For example, Ice cream truck drivers

Classical Unemployment is also known as real-wage unemployment. Increases and decreases in classical unemployment is a part of the law of supply and demand. Classical unemployment occurs when the wages a worker is willing to accept (real wages) is in excess of those an employer is willing to pay (market clearing wage).

Technological Unemployment is caused by how fast technology is improving in each country, making it to where people lose jobs or it makes it harder to find that kind of job. Recently, many jobs have been taken by AI’s or robots that are controlled by other people.

Now that we’ve gone over unemployment and its types, inflation is next

Inflation is a rise in the basic level of prices in an economy. Rate of inflation can be described as changes in the general prices. There are mainly two types of inflation that we encounter. these are demand pull inflation and cost push inflation.

Demand Pull Inflation is the kind of inflation that is caused by a high demand in the industry based on which prices increase. Increase of aggregate demand may be caused by any of these: Increase in the money supply, Expansionary fiscal policy, or Increase in the Net Exports, along with others.

Cost Push Inflation is the type of inflation that is caused by an increase in the input cost of commodities being produced and leading to an increase in prices. For example: there is an increase in the prices of raw materials in any industry, so the seller will want to increase prices to get more money from customers.