What is the relationship between high inflation and employme
What is the relationship between high inflation and employment?
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As unemployment rises,the inflation rate will definitely be reduced.This is because:
Higher unemployment will make it harder for unions and workers to bargain for higher wages.This is because if they ask for higher wages,employers can turn round and say there are 3 million unemployed people willing to work at lower wages.Therefore,wage inflation is likely to be muted during the period of rising unemployment.This will reduce cost push inflation and demand pull inflation.
The higher unemployment is also a reflection of the decline in economic output.Therefore,firms are seeing an increase in spare capacity and increase in volume goods not sold.In a recession,there will be greater price competition.Already,before Christmas,firms like Marks & Spencers are promising price cuts.Therefore,the recession will definitely reduce any demand pull inflation in the economy.
There is another reason inflation will fall.Earlier this year,inflation was caused by cost push factors – rising food prices,rising oil prices,rising electricity prices.However,all these factors are no longer occuring.Oil prices are falling.Therefore,inflation will fall for 2 reasons – lower cost push inflation and lower demand pull inflation.
This is why some fear deflation or very low inflation by the end of yea
Higher unemployment will make it harder for unions and workers to bargain for higher wages.This is because if they ask for higher wages,employers can turn round and say there are 3 million unemployed people willing to work at lower wages.Therefore,wage inflation is likely to be muted during the period of rising unemployment.This will reduce cost push inflation and demand pull inflation.
The higher unemployment is also a reflection of the decline in economic output.Therefore,firms are seeing an increase in spare capacity and increase in volume goods not sold.In a recession,there will be greater price competition.Already,before Christmas,firms like Marks & Spencers are promising price cuts.Therefore,the recession will definitely reduce any demand pull inflation in the economy.
There is another reason inflation will fall.Earlier this year,inflation was caused by cost push factors – rising food prices,rising oil prices,rising electricity prices.However,all these factors are no longer occuring.Oil prices are falling.Therefore,inflation will fall for 2 reasons – lower cost push inflation and lower demand pull inflation.
This is why some fear deflation or very low inflation by the end of yea
1年前
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