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Unemployment and Inflation Issues Essay

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Updated: Apr 17th, 2020

Highest unemployment rate

According to Labor Statistics (2009), Zimbabwe has the greatest number of unemployment, which stood at 95% as per June 2009.

Structural Unemployment

This is where the economy cannot provide jobs to all people in the economy, though there may be jobs, but the available situation offers a mismatch between the jobs. This may be in the form of skills required that unemployed people do not have. This is an example of unemployment that was brought about by computer introduction.

In most cases, if one is suffering structural unemployment, it is as a result of improvement in a certain area, or a change in the way things are done. It is appreciated that there are jobs, but the people are not fit for the jobs. If one improves his skills, he is likely to get his job back.

Fictional unemployment is when a worker is moving from one employer to another; there is a period when he remains temporary momentarily. It is also referred to as vocational unemployment. When an employee loses his job to a robot, he is not losing it momentarily so this is not fictional unemployment. The form of unemployment is structural unemployment (Card & Krueger, 1995).

Inflation and employment

When a country has high inflation, it means that there is increased money in circulation. This leads to an increased cost of goods; increased cost of goods knocks out businessmen from their ventures, a thing that makes the entire country to suffer. On the other hand, if a country is highly inflated, it means that its goods are expensive in the world market, making them uncompetitive. This results in loss of business on the part of exporters. The resultant is laying-off of employees.

This leads to unemployment in the country. This means that inflation and unemployment are related (Romer, 1986). During the global recession, there was a Cyclical Unemployment type. NRU refers to the National Reform Union which was in operation in the 19th century (1864–1867)

How do business cycles impact the economy?

Business cycles are ups and downs in an organization. When business is doing well, then it is in an up situation which is characterized by a growing economy, increased employment rate, and high job creation. When a business is in adown situation, then the business is performing poorly. This will lead to stagnant growth and the rate of unemployment increases.

What are the causes of business cycles of expansion and contraction?

Business expansion is caused by factors that influence the demand for goods positively. In this case, when the economy is doing well, and a company’s products are growing in recognition, then the business is in an expansion stage. On the other hand, if the economy is demanding fewer goods, then the business is in contraction. It is caused by negative factors which influence demand. The most recent cause of contraction is the world global financial crisis, which started at the end of 2007.

How can Demand-pull inflation and Cost-push inflation occur?

Demand-pull inflation occurs when demand for goods surpasses the supply of the products resulting in an increase in the price of the available commodities or goods.

Cost-push inflation occurs when the cost of the product of commodity increases to lead to an increased cost of the product.

Low inflation or high inflation

Neither high inflation nor low inflation is healthy for a country. When a country has low inflation, then its products are cheap in the local market since no disposable income to buy. This leads to business contractions that result in unemployment.

High inflation, on the other hand, exists when there is a high circulation of money in the economy making goods expensive in the international and local market.

The best level is a balanced one since it will encourage trade.

Reference List

Card, D. and Krueger, Alan B. (1995). “Time-series minimum-wage studies: a meta-analysis,” American Economic Review 85: 238-243

Labor Statistics (2009). . Web.

Romer, C. (1986). “Spurious Volatility in Historical Unemployment Data”, the Journal of Political Economy, 94(1): 1–37.

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