Inflation and unemployment in a market economy

The countries of Eastern Europe, as well as the Soviet Union, resolutely followed the path of creating a market economy. It will not be possible to form it immediately, it will take a certain period of time before all the necessary elements of the market begin to operate. First of all, this applies to monetary policy, the implementation of which requires a number of preliminary economic and personnel conditions. However, it is already necessary to think about what problems will arise as a result of the transition of these countries to market rails. The purpose of this article is to study the relationship between inflation and unemployment in a market economy, and the main thesis is that inflation must be dealt with in such a way as not to cause excessive growth in unemployment.


In a market economy, the political leadership faces the task of increasing employment while keeping inflation under control. It is generally accepted that if the economy develops successfully and the unemployment rate decreases accordingly, then at some point, before full employment is achieved, prices will begin to rise. The reason may be the pressure of trade unions to achieve wage increases that would outpace productivity growth (wage-cost push). The falling unemployment rate strengthens the position of trade unions and weakens resistance to wage increases from employers. In addition, individual employers are taking advantage of the current situation to raise prices to a level that cannot be justified by the changed labor costs.


Inflation may also be a consequence of rising costs that are not directly related to wages (non-wage cost push). This phenomenon has been called a "supply shock" in the economic literature. Such a disruption may result in increased costs caused by an increase in the cost of goods on foreign markets (for example, rising oil prices) or on domestic markets (for example, rising food prices). There are other reasons for spurring inflation, but their consideration is not the subject of this article.


Since economists have noted the rise in prices before reaching full employment, attempts have been made to detect any pattern in this trend, which led to the development of the concept of a "natural" unemployment rate, first formulated by M. Friedman. From his point of view, this is an unemployment rate consistent with the normal movement of real wages, taking into account the amount of current investments and scientific and technological progress. Les joueurs occasionnels qui ne parient qu’épisodiquement peuvent douter de l’intérêt d’une offre de bienvenue, compte tenu des conditions de mise. Pourtant, un seul accumulateur bien construit par semaine suffit à remplir le rouleau dans le délai imparti. Le code promo 1xbet du jour s’inscrit parfaitement dans ce scénario, et son inscription garantit une contrepartie qui amplifie vos parages espacés. Après activation, 100% up to €130 welcome bonus apparaît, rendant chacun de vos tickets hebdomadaires nettement plus conséquent que votre dépôt initial ne le permettrait.