The Effects of Inflation on the Labor Market

Name: Stephen Adeleye

Course: Economics 201

Objective: The effect of inflation on the job market

Date: 05 - 05 - 2003

The Effects of inflation on the Job Market

In the major industrial countries, low unemployment usually creates inflationary pressures. But during the recent economic expansion in the United States, prices have held steady despite low unemployment. Inflation is generally defined as an upward directional increase in the average of prices. Most people tend to be concerned about it because it reduces the purchasing power of the income earned by households. Though a few exceptions most commodities accentuate to this general assumption, all other things being equal. On the contrary the job market is a database of positions available for either a specific profession or the pool of potential applicants nation wide. With the use of visual aid and extensive explanations I will relate the connection between inflation and the Job market in America.

Inflation is caused by increasing the quantity of money used in purchasing a fixed amount of goods. This could also happen by reducing the number of goods available for a fixed “nominal” amount of money. On both sides money is subjected to it’s intrinsic relevance. Meaning peoples expectation of return varies when tendering a barter object.

In mutualism, the job market consists of all available positions available to all individuals sixteen years and above who are willing and able to work. In a deeper context the basic component of the job market is the minimum wage. The minimum wage is the lowest hourly salary that an employer is allowed to pay an employee for services rendered. The Federal Labor board sets the minimum hourly labor rates. The lowest hourly rates are decided by a collective bargaining, an arbitration and a board action legislation. Minimum wage laws were passed to ensure that employees are reasonably compensated. However exceptions to this include volunteer services, family businesses and of recent C.E.O.’s like Steve Jobbs who earns an annual salary of only 99 cents but receives millions in other gratuities

The Philips Curve

THE PHILLIPS curve is the negative empirical relationship between inflation and the unemployment rate--has long been a mainstay of market and policy analysis of inflation in the United States. Macroeconomic forecasters and policymakers alike have relied on the Phillips curve to provide a reading of the likely path for inflation in the period ahead. In the past few years, however, the Phillips curve seems to have become less reliable. The unemployment rate has fallen in the 1990s, but the expected subsequent increase in inflation has not occurred. Some have attempted to explain this in terms of developments in the labor market--specifically, increased fears of job loss. However, measures of job insecurity do not help to explain why the Phillips curve has been less reliable than in the past. Other factors, such as the behavior of labor costs other than wages, fluctuations in the value of the US dollar, and other developments affecting the markup of prices over wages, more likely explain the unusually subdued behavior of inflation in the United States.

Conclusions: Finally, actual