The Effect of Unemployment on Inflation

Priyati Saras Amelia

Business | Monday, 15 Apr 2024, 20:16 IWST

Inflation and unemployment rates are two indicators that can describe the economic performance of a country. The relationship between these two variables is a macroeconomic problem that is widely discussed in economic practice. In the last few decades, many studies have been conducted to analyze the relationship between inflation and unemployment rates both theoretically and practically. The relevance of the relationship between inflation and the unemployment rate also influences the policy mix in each country to achieve better economic conditions.

Unemployment is a fundamental problem in the economy of a country, both developed and developing countries. Low labor absorption is a major problem, especially in countries with high populations. The policy mix is ​​needed to reduce the unemployment rate in accordance with one of the President’s missions, namely creating equitable and just development.

The policy mix cannot be separated from the fiscal and monetary sectors. The monetary policy implemented by Bank Indonesia aims to achieve and maintain. stability of the value of the rupiah. In an effort to achieve this goal, since July 1 2005 Bank Indonesia has implemented a policy framework. monetary Inflation Targeting Marketing (ITF). In this framework, inflation is an indicator that must be achieved. According to the changes. dynamics and challenges in the economy, Bank Indonesia and the government are working together to strengthen its effectiveness.

However, there are problems faced in achieving the goals related to the two main indicators, namely inflation and unemployment. There are problems. Observations made by AW Philips during the economic depression in the United States in 1929, found that there was a close relationship between inflation and the unemployment rate. Connection. This is negative, meaning if a country’s inflation is high. then the unemployment rate will fall. There is a trade off between inflation and unemployment

Unemployment and inflation are still problems in several countries, including Indonesia. The Inflation Targeting Framework (ITF) policy implemented by Bank Indonesia certainly has an impact on unemployment conditions in Indonesia. The creation of the FTA (Free Trade Area) increases the closeness of relations, especially in the economic sector.

The existence of a negative relationship between the unemployment rate and inflation has been an issue for a long time. Looking at current economic developments in ASEAN 7, this article offers an analysis of the relationship between inflation and unemployment. What is the negative correlation between inflation and unemployment. still valid today