Introduction
Unemployment and inflation are common to most economies in the world. Piore defines unemployment as a scenario whereby the available job vacancies cannot absorb all available labor force in a particular economy (2017). Inflation refers to a situation in the market whereby the price of commodities continually increases to the point that average citizens are unable to afford them. The two issues discussed in this paper are the “Part-time employment rates for economic reasons” and “The increase in the price of housing and its effect on investment.” These two issues are of interest due to their sensitivity to most economic variables. According to the U.S. Bureau of labor statistics, reduced demand related spending among customers leads to inflation. As the housing prices rise due to an increase in the cost of production, the burden is passed on to the buyers (2014). With adequate Gross Domestic Product (GDP), full employment can be attained while paid wages become more competitive with inflation.
Data
Table 1 below shows data collected from the Federal Reserve Economic Data (FRED) database from 2005 t0 2015. The information captures unemployment, wages, GDP, inflation rates, housing prices, and economic related part-tine employment. This period captures the economic trend before, during, and after the 2007-2009 financial crisis that was experienced in the subprime mortgage of the United States’ housing sector (Federal Reserve Economic Data, 2020). However, the effects caused by this crisis were felt past the period captured in the paper.
Table 1: Data on Macroeconomic Variables
Figure 1 below shows GDP and Real Wages in a typical economy like that of the United States, where economic growth is reflected by the high output of goods and services.
Figure 1: GDP and Real Wages
Figure 2 is an illustration of the relationship between unemployment rates and inflation. The statistics show a relative increase in unemployment rates, which increases with inflation to a certain point where the reverse happens, especially during the period of the financial crisis (Federal Reserve Economic Data, 2020).
Figure 2: Unemployment and Inflation
Figure 3 below shows the trends in part-time employment and housing prices. The years that recorded high part-time jobs also recorded low housing rates and vice versa.
Figure 3: Part-time employed and Housing prices
Analysis
High GDP is associated with increased employment to increased investment to the economy hence reducing the inflation rates. Increased real wages contributed to increasing GDP because when the industries pay highly, they will attract more laborers. The latter will be willing to provide their services hence increasing productivity, which translated to high GDP and vice versa. The alteration of the trend depicted in figure 2 above between 2007 and 2009 was consequent of the subprime mortgage financial crisis of 2007-2009.
After 2008, part-time employees increased tremendously following a possible economic decision by most employers to recruit part-time employees who will cost the industries reduced wages that their permanent counterparts (Federal Reserve Economic Data, 2020). This decision is aimed at covering up for the increased economic recession. According to Wolla, demand for housing facilities was high before the crisis, a trend that prompted monetary authorities to make bowing favorable for more housing investors (2016). Too much of the favorable conditions led to over-investment in the housing sector exceeding demand hence lowering the house prices.
Reflection and Critical Thinking
Before the year 2005, the U.S. economy was equal in terms of the inflation rate, unemployment rate, and the total number of wages paid to workers. The unemployment rate was at 5.08%, while the inflation rate was at 2.48% (Federal Reserve Economic Data, 2020). The difference in inflation and unemployment made the wages paid to employees to be more sensitive (Wolla, 2016) hence bringing about many changes as demonstrated in the rates. For ten years, the changes have been positive and negative in the recession. Many business circles were changed after the year 2005 and the U.S. financial crisis of 2007-2009. During the entire period, the GDP growth rate increased in the year 2005-2006 before going down in the year 2006-2009 (Federal Reserve Economic Data, 2020). This aspect was the same case in terms of wages. After the United States’ financial crisis, the economy was greatly affected since less money was in circulation. Thus little economic growth.
On tracking the data on the real wages paid to workers over the entire period of 10 years, there were more improvements after the recession period than before. In the years 2005-2006, the economy underwent standard microeconomic variables, and there was normalcy in terms of wages after the year 2010 (Federal Reserve Economic Data, 2020). This aspect was caused by the normalcy in the marketplace that operated in full employment. On the other hand, the year 2007-2009 was significantly affected because the economy had constraints in the production sector.
Solution
The leading cause of the 2007-2009 financial crisis was due to the going down of the demand related spending in consumer products and pressure in the economy during the recession period. According to Levine, the issues in the U.S. economy during the recession period could be solved by using monetary instruments of decreasing the interest charged on those borrowing loans or the money borrowed by investors (2013). This aspect could increase the money in circulation. When the interest rate of borrowing is decreased, then it attracts many investors to borrow loans cheaply and invest, leading to growth in the market. Therefore, many commercial activities are likely to take place when there are more investments; this scenario could lead to the creation of employment.
The other solution concerns government policy. The government can lower the tax rates and increase its expenditure leading to an increase in money circulation. Therefore, people can make more income. The government projects will be able to absorb more labor hence decreasing unemployment.
