Unemployment and Inflation

Posted: November 30th, 2013

Unemployment and Inflation

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Unemployment and Inflation

In any given country or state, various factors affect the growth and development of the respective economy. One such factor is unemployment, which slows the growth rate of economies due to the reduction in a nation’s national income. Unemployment transpires when individuals do not have any mode of acquiring income or are seeking alternatives of earning. Inflation and unemployment are related causatives of a slow economy. Inflation refers to the persistent increase in the cost of tangible and intangible commodities in a financial system over time. Thus, the relation between unemployment and inflation is profound and factual when the cost of tangible and intangible commodities, such as raw materials, raises causing companies to either lay off their workers or cease from employing more workers reducing the costs of production and paying wages to employees.

The rate of unemployment is a gauge of the frequency of unemployment and is computed as a proportion of those individuals without jobs as compared to their employed counterparts. In America, the rate of unemployment is currently standing at 23% after the government stated the measure to be at 8.2%. The 8.2% rate, also known as the U3 rate, represents the unemployed or the people who have started to search for employment for less than a month but have become discouraged or are not looking for jobs. The broader discouraged rate, also described as the U6 rate, which stands at 14.9%, represents the short-term workers, searching for jobs, whom are either working part time or have become discouraged and stopped searching for employment. In contrast, the 23% rate collectively sums up the two rates to represent the overall unemployment rate for the country.

Most young people constitute the U3 rate, which comprises the unemployed, and those that have searched for work for four weeks and have become discouraged. Most of them fall between ages of 16 and 25. The unemployment rate falls within these age group because most of these youths search for jobs during the summer holidays thereby resulting in an elevated number of the workforce. The United States government has contributed to this rate of unemployment due to embracing surveys on short-term unemployment as opposed to long-term unemployment before 1994. It has also been evident that the rate at which unemployment occurs is rising since people are discouraged for being unable to find work and thus, limit themselves to the two categories. The number of jobs created compared to the prospective labor force is at a deficit also contributing to the rise in the unemployment ratio among the youth age group.

The unemployment rate among the youth has also been attributed to the demand for tangible and intangible commodities. In order for a company or a firm to increase the supply of its commodities, it requires a large workforce or marginal work inputs. The rise in the delivery of the commodities is proportionally related to the increase in demand for these commodities when observed in the short run. This increase in the demand leads to the employment of additional laborers in the firm. However, if the demand for these commodities is either stagnant or reducing, then the firm is obliged to cut down on its resources by downsizing the number of its workers and reducing or ceasing employment of new workers in order to reduce costs involved in the production of its commodities.

Unemployment influences negatively on the economy of a country and presents a negative social euphoria that leads to the increase of deviant behavior in societies and reduces the productivity of a nation. Therefore, it is highly beneficial for jobs to be created to enable the development of an economy.