1. Unemployment and Inflation
Economics

2. Unemployment Economist’s definition:
Those of working age, who are without work, but who are available for work at current wage rates.

3. Two measures of unemployment.
Claimant count
‘People of working age, who are without work, who are able and willing to work and looking for work for four weeks.

4. From Jobs
People made redundant
People sacked
People resigning
People temporarily laid off
From outside the labour force
School/college leavers
People returning to the labour force
UNEMPLOYED
To outside the labour force
People who give up looking for a job
Retirement age
Temporarily withdraw from labour force
Emigrate
To Jobs
People taking new jobs
Returning to jobs.

5. Causes of unemployment
Cyclical unemployment
Frictional/Search unemployment
Structural Unemployment
Technological Unemployment
Regional Unemployment
Seasonal Unemployment

6. Costs to the economy Unemployment benefits Loss of tax revenue
Increased crime
Wasting skills
Social problems

7. Kazakhstan’s Unemployment Rate

8. Inflation The rate at which P  for goods and services
 purchasing power 
Inflation is measured by CPI Consumer Prices Index

9. Inflation Measured by the CPI (Consumer Prices Index)

11. Inflation

12. Source http://www.tradingeconomics.com/kazakhstan/inflation-cpi

13. World Inflation Rates

14. Costs of Inflation Menu costs Redistribution Uncertainty
Bad for Balance of Payments
Resources

15. Causes of Inflation Demand Pull Rising AD Cost Push
Diminishing resources
External Shocks
Wage Push
M prices rising.
Tax Push

16. Who loses out from Inflation?
Businesses
People on fixed incomes

17. Who Benefits from Inflation?
People in debt

18. Relationship between Inflation and Unemployment.
1958 Phillips showed the statistical relationship between wage inflation and unemployment in the UK between 1861 and 1957

19. THE PHILLIPS CURVE 5% Inflation
The reason the curve is bowed in to the origin is as AD expands, initially there would be plenty of surplus labour, which would meet the extra demand without the need to raise wages very much.
Unemployment 5%

20. Questions
In England in the 1970s, the price of oil increased by 4x. England M all our oil from OPEC.
This D for M, and D for domestically produced goods.
Therefore what happened to unemployment?
What happened to inflation?
How would this be illustrated on the Philips Curve?

21. Outward Shifting Phillips Curve
Oil price shocks
Expansionary fiscal policy
High Interest Rates

22. Inward Shifting Phillips Curve
More flexible labour force
Use of inflation targets by Monetary Policy Committee.
Advancements in technology leading to lower unit costs.
Increased competition from abroad, forcing firms to keep their costs down.

23. NAIRU Non-Accelerating Inflation Rate of Unemployment.
Is the level of unemployment which exists when the AD for labour = AS of labour at the going wage rate.
There is no upward pressure on the wage rate or inflation.
NAIRU consists of voluntary, frictional and structural unemployment.

24. THE LONG RUN PHILLIPS CURVE
Inflation
THE LONG RUN PHILLIPS CURVE
0% inflation and 5% unemployment
Then there is a sudden increase in AD
Unemployment 5%

25. Expectations Augmented Phillips Curve
When unemployment drops below the NAIRU (non-accelerating inflation rate of unemployment), increasing inflationary expectations shift the Phillips Curve outward.

26. Expectations Augmented Phillips Curve
Higher costs and decreasing aggregate demand push unemployment up and inflation down along the new Phillips Curve.

27. Expectations Augmented Phillips Curve
There is no permanent inflation-unemployment tradeoff.  At the NAIRU unemployment rate (for example), inflation may be low or it may be high, once inflationary expectations adjust.

28. Kazakhstan’s GDP per Capita