Nov 5, 20223 min read

Inflation vs Unemployment

Updated: May 31, 2023

Author: Ema Oberpfalzerova

Date of Publication: 05/11/2022

Inflation and unemployment are two of the most important economic indicators economists, and policymakers follow. This happens when discussing the economy's health. In FACT, They can strongly impact each other even though they aren’t directly related. For example, policymakers aren’t likely to reduce inflation without causing a rise of unemployment.

In particular, inflation is a 'general increase in prices and a fall in the purchasing value of money'. On the other hand, unemployment refers to a 'situation where a person actively searches for employment but is unable to find work'. However, how are these two economic indicators related?

The first person who identified the relationship was A.W. Phillip in 1958. Therefore, other economists named the curve The Phillips Curve to honour him. Specifically, the inverse relationship between inflation and unemployment appeared in the 50s and 60s. Yet it gradually dropped over the past 20 years, mainly during the pandemic.

Recent numbers and statistics

Currently, we are facing a major crisis of inflation. The Federal Reserve aims to maintain inflation at a steady and low 2% rate for healthy economic growth. However, the rate has risen up to 8,5% over the past 12 months. What’s more, it is about to grow due to the Ukrainian-Russian crisis. As a result of this increasing number, consumers have cut their budgets for many products and services. For example, this happens with grocery shopping, their rent and more and more of them are living from paycheck to paycheck.

Even though the unemployment rate isn’t that high these days, there was a peak during the Covid-19 pandemic. Of course, we are talking about the rates that were up to 14,7% in April 2020. Hopefully, currently, we are holding at a low rate of 3,5%, the lowest since February 2020.

Employees' support

To prevent leaving employees, organizations came up with workplace innovations. Actually, employees could quit due to non-satisfactory pay or benefits, which aren’t enough to cover the rising prices. Let’s take a look at these innovations.

● Deployment of new technology

Automated instant bonuses and real-time earnings alerts to help improve employee take-home pay and engagement.

● Low-tech wellness benefits

Carpooling incentives and grants for commuters to mitigate high gas prices.

● Surveys and researches

Survey conducting for a better understanding of the employees' needs and pain points.

Self-employment as a new rescue?

As most economies are shifting into a recession, it is time for a rise in self-employment. A similar situation happened for the first time during the first wave of the Covid-19 pandemic. According to Bloomberg calculations, there are 16,8 million self-employed workers, with 1,4 million growth over the past two years. Therefore, here are a few tips for those who are considering moving themselves into self-employment:

1. Have savings

Starting a new business will be expensive, and it is more than essential to have savings to cover the first costs.

2. Test the waters

Research topics like what the target group is, the appropriate working environment, the competition you are going to face etc. It will help you with your confidence and trustworthiness when contacting new customers or clients.

3. Develop a business entity

Developing a business entity would be beneficial for you if there is some misunderstanding with a client and they decide to sue you. With the proper protection, they cannot seek to take your home, for example.

In conclusion, inflation and unemployment are both significant influencers of the economy and, thus ourselves. It is more than necessary to be prepared for the future implications of the current rise and don't be afraid of those changes. So, in this article, we have discussed some general statistics, how to support employees or the potential of self-employment.