Higher Expected Inflation example essay topic

Name: Stephen AdeleyeCourse: 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 Jobs who earns an annual salary of only 99 cents but receives millions in other gratuities The Philips CurveT HE 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 1990's, 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 inflation can be influenced by expected inflation through the wage- setting process.

For example, workers may respond to higher expected inflation by demanding higher wages, and firms may, in turn, raise prices to offset rising costs. If expected inflation is partly conditioned by past experience with inflation, then periods of low inflation like the early 1990's might create a 'virtuous circle' of low expected inflation that leads to low actual inflation. Expected inflation rate has declined to below 3 percent for the first time since it was first measured almost 20 years ago. The combined effects of these factors, which influence the markup of prices over wages, seem to provide a more likely explanation of low inflation in the United States in the 1990's than the level of job uncertainty. Other Factors: "Are Illegal Immigrants Suppressing Inflation?" Many experts fear that labor shortages and demands for higher wages could ignite inflation unless economic growth is reined in.

But some economists think their colleagues are paying insufficient attention to the impact of immigrant workers particularly illegal immigrants on the equation. The economists think that much of the gap reflects illegal immigration, since the payroll survey is based on company records and the household survey is based on interviews of workers. Workers who are here illegally often refuse to cooperate in interviews, and it is that calculation which has the lower numbers. So immigrants both legal and illegal may be playing a role in holding down wage rates and inflation. Work CitedKoretz, Gene.

America's Secret Labor Force. Business Week, April 17, 2000. "University of Saskatchewan Library". University Of Saskatchewan. 28 April 2003. Hush, Tony.

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