Inverse Relationship between Inflation and Unemployment
There exists an inverse relationship between inflation and unemployment in the short run. In economics, this relationship is referred to as Philip's curve. However, it is not a permanent tradeoff and ceases to exist in the long run. Policy makers have a tough choice to make as to what level of inflation is acceptable when targeting to stimulate economic growth and reduce the levels of unemployment.
The Long-Run Perspective
In the long run, the problem that arises from the tradeoff between unemployment and inflation is no more. Therefore, as an economist, I would advocate for little interference in the economy by policymakers unless it is absolutely necessary. The economy has a mechanism of self-adjustment which is disrupted when the policy makers try to fine tune it. Instead, the policymakers should put in place rules and regulations that foster competition and efficiency leaving the economy to settle on its own. During instances of extreme economic difficulties, such as severe inflation or during a depression, the policy can interfere until the economy attains some level of normalcy.
Unemployment and Inflation Statistics
Data from the Department of Labor shows that the unemployment rate has been declining from 8.1% in 2012, 4.9% in 2016, and 4.1% in 2018. During the same duration, the rate of inflation fluctuated severally starting with 2.1% in 2012, 1.3% in 2016, and back to 2.1% in 2017. While it is not the case always whenever the unemployment rate declined, the inflation rate increased. According to the Bureau of Labor Statistics, the unemployment rate in the United States of America stood at 4.1% in January 2018 with an inflation rate of 2.1%. The economy is performing well and according to statistics presented President Donald Trump has done a good job economic wise so far.
