Can Inflation Help Determine How Fast Labor Markets Recover from Recession

...

[pic 4]

Fig. 3: Inflation rate of South Africa (2006-2016) Source: (Trading Economic)

[pic 5]

Fig. 4: Unemployment rate of South Africa (2006-2016) Source: (Trading Economic)

3. Conclusion

Based on the above analysis, during the economic recession, a substitutional relation exists between unemployment and inflation, namely higher inflation contributes to lower unemployment and vice versa. In this case, maintaining an appropriate inflation rate can speed up the recovery of labor markets, as can be certified in countries like the U.S., UK and Canada. However, due to the restrictions of its specific assumptions, Phillips curve, a theoretical hypothesis formed by historical experiences of economic development among western developed capitalist countries, may neither be applicable for some developing countries like the South Africa nor be applicable for planned economies like the North Korea. Besides, increasing inflation rate to lower unemployment rate is not appropriate for South Africa, a country with both high inflation rate and high unemployment rate.

---------------------------------------------------------------

Works Cited

Calvo, Guillermo A., Fabrizio Coricelli, and Pablo Ottonello. Labor Market, Financial Crises and Inflation: Jobless and Wageless Recoveries. No. w18480. National Bureau of Economic Research, 2012.

Calvo, Guillermo A., Fabrizio Coricelli, and Pablo Ottonello. "Jobless Recoveries during Financial Crises: Is Inflation the Way Out." Working Papers Central Bank of Chile (2013).

Katria, Sagar, et al. "Trade off between inflation and unemployment." International Conference on Business Management (2011): 3.

Marcellino, Massimiliano, and Grayham E. Mizon. "Modelling shifts in the wage–price and unemployment–inflation relationships in Italy, Poland and the UK." Economic Modelling 17.3 (2000): 387-413.

Phillips, Alban W. "The Relation between unemployment and the rate of change of money wage rates in the United Kingdom, 1861–19571." economica 25.100 (1958): 283-299.

Samuelson, Paul A., and Robert M. Solow. "Analytical aspects of anti-inflation policy." The American Economic Review 50.2 (1960): 177-194.

Temple, Jonathan. "Openness, inflation, and the Phillips curve: a puzzle." Journal of Money, Credit, and Banking 34.2 (2002): 450-468.

The Economist. “The price of getting back to work” The Economist. 1st February, 2014. Web. Accessed on 13th March, 2016.

Trading Economic. “Trading Economic” Trading Economic. n.g. Web. Accessed on 13th March, 2016.

Welsch, Heinz. "Macroeconomics and life satisfaction: Revisiting the" misery index"." Journal of Applied Economics 10.2 (2007): 237-251.