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التضخم و البطالة Unemployment and Inflation

لخامسالجزء ا

الرحماني. إقبال د2001

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Unemployment

Boom

Recovery

Depression

Recession

Real GDP growth

Time

Recall that unemployment is

an economic and social

phenomenon that occurs and

increases mainly during

periods of recessions and

depressions of the business

cycle.

Q: What causes the fluctuations in the business cycle?

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Types of unemployment:

1- Seasonal unemployment: A product of regular andrecurring changes in hiring of certain fields on aseasonal basis . ( بطالة موسمية)

2- Frictional unemployment: A product of the short-term movement of workers between jobs & of first time job seekers. (بطالة إحتكاكية)

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3-Structural unemployment: A product of technological changes and other changes in the structure of the economy. ( بطالة هيكلية)

4- Cyclical unemployment: A product of the down side of the business cycle. (بطالة دورية)

Q-1: What is disguised unemployment, behavioral unemployment, and imported unemployment?

Q-2: What are the main types of unemployment exit in the Kuwait?

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Note: Full-employment in economics does not mean zero unemployment. That is why some economist use the termNatural rate of unemployment.

Natural rate of unemployment: the unemployment rate that would exist when cyclical unemployment = zero

Note: Frictional unemployment is short term; while structural unemployment can be long term.

Q: Who is more likely be unemployed among the differenteducational levels, age groups, sex and race?

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Q: What are the costs of unemployment?

1- lower standards of living and status (social unrest).

2- Lower GDP.GDP Gap = Potential GDP - Actual GDP

Okun’s Law: For each 1% which the actual unemployment

exceeds the natural rate of unemployment, a GDP gap of 2% occurs.

Q: What is the effect of increasing unemployment on the government budget ?

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Lines of unemployed Americans waiting to receive subsidies (unemployment benefit) during the time of the Great depression.

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Unemployment rate = number of unemployed X 100

number of the labor force

Measure of Unemployment:

Q-1: Who are the unemployed ?

A: those who are actively seeking work and can not find any jobat the average wage.

Note : unemployment rate does not include discouraged workers.

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Note: Total population :

Population under

age 16

House care takers + students

+ retired + disabled

Employed Unemployed

Q-2: What is meant by the labor force (قوة العمل)?

A: The labor force includes those who are working and those who are unemployed and seeking employment

Labor force

Total population

Outside the Labor force

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Example: according to 1998 statistics of Kuwait, calculate the unemployment rate

Outside the labor

force

435695

Employed +unemployed

206190

Unemployed

2209

Unemployment rate = 2209 X 100 = 1.1%

206190

then

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معدل البطالة في الكويت مازال يعد منخفضا ولكن مالحظة:المشكلة األساسية تتعلق بإختالالت في قوة العمل وسوق العمل

وفي التركيبة السكانية.

Young Population المجتمع السكاني الكويتى فتي % من مجمل السكان( . 42 سنة يمثلون حوالي 15السكان > (

مما Fertility rate باإلضافة الى ارتفاع معدل الخصوبة.Dependency Ratio يؤدي الى ارتفاع معدل اإلعالة

Note: Dependency ratio = population < 15 years + population > 60(5)

Population at age 15 - 60 (5)

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اختالل سوق العمل في الكويت

نسبة الكويتيين الى اجمالى قوة العمل نسبة الكويتيين الى اجمالى قوة العمل

العمل قوةالكويتية18.85

العمل قوةالوافدة

81.15

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خدمات إنتاجية

5.62

تجارة1.30

وشخصية اجتماعية 85.40خدمات

أنشطة سلعية

7.67

حسب النشاط االقتصادىحسب النشاط االقتصادىحسب النشاط االقتصادىحسب النشاط االقتصادى

اختالل سوق العمل )قوة العمل الكويتية(

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اختالل سوق العمل )قوة العمل الكويتية(

حسب قطاع العملحسب قطاع العملحسب قطاع العملحسب قطاع العمل

ومشترك خاص6.80

93.20حكومي

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التوزيع المهنىالتوزيع المهنىالتوزيع المهنىالتوزيع المهنى

اختالل سوق العمل )قوة العمل الكويتية(

وفنية علمية8.44

مدرسون13.48

مديرون 20.41ومشرفون

أخرى

24.60

كتبة33.08

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ية العملالكويت المستوىالتعليميلقوة)2000(

ا علي ت مؤهال

وسطة ت مؤهالتم

ا ي دن مؤهالت

دونمؤهل ب

22.9%

33.7%38.4%

5%

% من 15.2مالحظة: نسبة حملة المؤهالت العليا من الذكور= % من مجمل اإلناث36.9مجمل الذكور بقوة العمل ، و اإلناث

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Inflation

Recall that keeping a stable general price level is one of themain macroeconomic goals.

Inflation is a sustained rise in the average level of prices (general price level).

The price level is the average level of all prices in the economy.

Note: inflation is generally classified into two types: Hyper inflation & creeping inflation

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Measure of inflation:

Recall that the price index(PI) is a measure of changes in the average price level. Q|: How is the price index measured ?

PI for a certain year - PI for a comparative year X 100

PI for a comparative year

Inflation rate =

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Year Price index

1995

1997

1996

2000

100

110

120

123

Example :

Calculate inflation rate between (1995-97) and (1997-2000)

1) Inflation rate (1995-97)

= (120 - 100) X 100 = 20 %

100

2) Inflation rate (1997-2000)

= (123 - 120) X 100 = 2.5 %

120

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Real historical example, Germany 1914-1924:

Year

1914

1920

1918

1922

100

204

1260

3670

Price index

1923

1924

278500

117,320,000,000,000

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Effects of inflation:

1- Impact on income: if nominal income does not increase, it means a lower purchasing power. Hence, real income will be lower.

2- Impact on income distribution: redistribution of income from fixed income groups to unfixed income groups.

Note 2: purchasing power = real value of one unit of money ( $1) = ( $1 / price index) X 100

Note 1: Recall, Real income = (nominal income / PI) X 100

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Effects of inflation:

3- Impact on creditors & debtors: if inflation rate is higher than nominal interest rate; then there will be a redistribution of income from creditors to debtors.

4- Impact on balance of trade: if inflation rate in the economy is higher than rates in other countries; this will increase imports and reduce exports, leading to a deficit in the balance of trade.

Note : Real interest rate = nominal interest rate - inflation rate

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Types of inflation: (according to the source of inflationary pressure)

1- Demand-pull inflation: inflation caused by increasing aggregate demand for output. “Too manydollars chasing too few goods”. More likely to occur when the economy is operating near its potential output.

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Q

P

AS(SR)

AD

Ye Y

f

AS (LR)

Recall!When the economy is operating near full employment,any increase in AD will lead only to an increase in prices.

p1

p2

p3

AD2

AD3

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Types of inflation:

2- Cost-push inflation: inflation caused by rising costsof production. “profit -push” vs. “wages- push”!. Could occur at different levels of output.

Q-1: What is meant by imported inflation?

Q-2: What is meant by stagflation?

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Phillips Curve

In 1958, A.W. Phillips , a New Zealand economist, found that thereis an inverse relationship between the unemployment rate and the rate of change in wages in England during the period 1826 to 1957.

Later early studies confirmed aninverse relationship between unemployment and inflation rate. This relation became known asPhillips Curve.

Unemployment rate

Inflation rate(wage rate)

F1

F2

U2U1

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Q: Is there a trade off between unemployment and inflation rate?

Unemployment rate

Inflation rate

Most economists believe that the inverse relationship between inflationand unemployment rate is just a short-term phenomena.

LR Phillips Curve

SR1SR2

SR3