If you are here to educate yourself on real estate investing, you may be wondering what inflation has to do with full employment.
There has been a lot of discussion in various news stories suggesting things like raising wages of workers will have a negative impact on the overall economy. The inference is subtle and often shows you the bias in a particular media outlet. If the media caters to the business and investor class, it will imply that worker pay increases are bad for the economy.
On its face, that may seem true. There is often an inverse relationship between inflation and employment. When unemployment is high, there is often less demand for goods and services, which can lead to lower inflation. Conversely, when unemployment is low, there is typically more demand for goods and services, which can lead to higher inflation.
This relationship is known as the Phillips curve, which is a graphical representation of the inverse relationship between the unemployment rate and the inflation rate.
The curve suggests that there is a trade-off between these two economic variables: when unemployment is low, inflation tends to be higher, and when unemployment is high, inflation tends to be lower.
However, the relationship between inflation and employment is not always straightforward. There are other factors, such as changes in productivity, supply and demand conditions, and monetary policy, can also affect the relationship between these two variables.
One other factor influencing worker pay is the current labor shortage. Workers are simply refusing to continue to work for low pay. This has led to statements like “nobody wants to work” and other false ideas. Shaming people for wanting to live a better life is a terrible message.
It’s more likely that the pandemic showed people, especially workers, that their lives were more important than dying from COVID. The Fed’s economic took kit has no counter-measures for this influence, at least not yet.
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