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How Inappropriate General Wage Levels and Wage Inflation Can Cause Increased Unemployment - Assignment Example

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This paper "How Inappropriate General Wage Levels and Wage Inflation Can Cause Increased Unemployment" aims at analyzing the impact of general wage levels and wage inflation towards the upside of unemployment. The most interesting aspect of economics is its ability to twist and turn relationship.  …
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How Inappropriate General Wage Levels and Wage Inflation Can Cause Increased Unemployment
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How Inappropriate General Wage Levels and Wage Inflation Can Cause Increased Unemployment

Download file to see previous pages... Unemployment is often considered as a disease in the society; its major impact is the fact that the productivity that can be obtained by employing the unemployed resources is foregone. Additionally, it adds poverty to the society, frustration to the individuals, and more often than not, the symptoms of unemployment can be observed by tracking crime rate as it often creeps up. There are several reasons for unemployment, however, in the current economic situation; recession can be identified as the ‘hottest’ reason. Recession not just leads to unemployment in the short run but has long-term negativity associated to the same, by the due fact that individuals lose their interest in gaining relevant skills for a job, and subsequently, when recovery takes place and demand of the labor moves up, but lack of appropriately required skill set makes it difficult for employment levels to move up, and thus, recovery becomes very slow (Blanchard, 2008).
Inflation, as simply defined as an increase in general price levels, is also a critical aspect of the economy, and is an important economic indicator. Despite the fact that inflation illustrates the growth of an economy, at the same time, this variable needs to be retained within certain limits because exceeding a certain value would imply excessive increasing prices, putting pressure on consumer pockets, and not allowing them to retain their standard of living, let alone increasing them. Inflation is influenced by various economic elements such as various input costs, depreciating the local currency, etc, while it also affects other economic elements at the same time (Nellis, 2006).
Consider a scenario in which average wage is on the greater side, then as per the above equation, the unit labour cost would be on the higher side as well. Following this scenario, it can be assumed that the producer would have to increase the price of the output to ensure profit margins remaining at the past numbers, if not moving ahead that is.  ...Download file to see next pagesRead More
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