How does inflation effect the job market?

Answer 1

In most economies, there are two types of inflation - price inflation, and monetary inflation. Monetary inflation is caused by the government issuing more money than can be absorbed by the economy, leading to higher prices, but only in relative terms. An example would be the proposed $300 "gift" from from President Bush to the American people. It is a false improvement. For example, in post-WW I Germany there were so many deutschmarks in circulation that you needed a wheelbarrow full to buy a loaf of bread. Price inflation happens when the supply of a good or service is restricted without a corresonding drop in demand, so things get more expensive. When "things" are more expensive, some people buy less of them, if possible. Classic inflation affects the job market only in the sense that employers may have to pay higher salaries to attract the same level of talent as before - there is usually no overriding reason to reduce or increase employment levels during 'normal' inflationary periods. Most economists believe that a 1% to 2% inflation rate during a growing economy is normal as markets adjust to fluctuating demand. A RECESSION, on the other hand, is a REDUCTION in the amount of money flowing in an economy, and can have a noticeable negative effect on the job market - less money = less buying = less production = less need for workers.