Macroeconomic Analysis: Unemployment and Inflation

Introduction 

One of the negative impacts of the pandemic is that it led to a lockdown in the economy. The lockdown resulted in high levels of unemployment as companies laid off most of their employees. Unemployment is a word that describes the state where individuals that are employable and actively looking for a job cannot find work. High unemployment means that the economy has a low output and is producing below its capacity. Inflation is a measure that determines the rate of rising prices of goods and services in the economy. High inflation means that there are high prices for basic items such as food, leading to undue stress to society. Gross domestic product (GDP) represents the total aggregate output of the economy. Growth in the GDP that is higher than labor productivity will make employment rise. Over time, growth in GDP increases the disposable income for a population and can cause inflation. The key issues that affect unemployment in the United States are gender inequality and racial inequality, where minority groups face high levels of unemployment. This paper analyzes the unemployment rates by gender and unemployment rates among Black and Hispanic communities and examines the monetary and fiscal policies used to solve them.

Data 

The data chosen for the analysis were the GDP growth rate, unemployment rate, and inflation rate. The variables chosen were unemployment by gender, and unemployment among Black and Hispanics were also analyzed. The study analyzed trends in historical data by examining the trends in the past 15 years between 2006 and 2021. The

GDP Growth Rate 

The GDP growth rate has been generally positive. It has varied between 1.5% and 1.75% when the economy is doing good. Before the recession in 2009, the average GDP growth rate averaged at 3% between 1987 and 2007 (Fernald & Hi, 2019). Figure 1 shows that the 2009 recession led to a decline in the GDP growth of up to -4%, and the pandemic from 2019 December made it fall to 9%.

Figure 1 

GDP annual growth rate between 2006 and 2021 

Unemployment Rate 

The unemployment rate has also been declining ever since the 2009 recession. The unemployment rate was at about 5% in 2006, and the 2009 recession made it rise to 10%. The lowest unemployment was in January, where it was at 3.5%. The pandemic made the unemployment rise by up to 14.8%. Gavrilović and Vučeković (2020) observed that approximately 56 million Americans applied for unemployment insurance beneficiaries as they were unemployed. Figure 2 and Table 1 show the unemployment rates between the years 2006 and 2021.

Figure 2 

Unemployment rate 

Table 1 

Data on the Unemployment rate between 2006 and 2021 

Inflation Rate 

Inflation can be measured by considering the inflation and consumer price index. The inflation rate has been positive levels showing that it has been rising apart from the times where there are recessions. During the 2009 recession, the inflation rate was at -2%, while that during the pandemic was at 0%. According to Sayeed et al. (2019), the economy experienced 0.22% between 2008 and 2017 points of undershooting compared to the target. The consumer price index is a measure of inflation as it shows the percentage change in the prices of goods consumed by households. The CPI has been rising sharply between 2006 and 2021.

Figure 3 

Inflation rate between 2006 and 2021 

Figure 4 

Consumer Price Index as a measure of inflation between 2006 and 2021 

Table 2 

Consumer price index as a measure of inflation between 2006 and 2021 

Unemployment Rate by Gender 

The unemployment rate by gender measures the difference in unemployment between men and women. Figure 5 shows that the percentage of unemployed men was relatively high during the 2009 recession where 11% of men were unemployed, but 9% of women were unemployed. The pandemic led to a higher level of unemployment compared to women. According to Landivar et al. (2020), women were more likely than men to leave the labor force during the pandemic.

Figure 5 

Unemployment rate by gender between men and women 

The unemployment rate for Blacks and Hispanics 

The unemployment rate for Blacks and Hispanics were compared and analyzed to that of the whites. The Black African Americans experienced the highest unemployment levels, followed by Hispanics, and the white population had the lowest levels of unemployment. Figure 6 illustrates the changes in unemployment over the years.

Figure 6 

The unemployment rate for black or African Americans, Hispanics, and Whites 

Analysis 

The unemployment rate, inflation rate, and GDP growth rate showed that it had been significantly affected by the 2009 recession and the pandemic. The unemployment rate was high in 2009 where it had risen from approximately 5% in 2008 to 10% in 2009. The inflation rate had also declined where it had declined from 6% to -2% in the years 2008 and 2009. The GDP growth rate had declined where it had changed from 2% in 2008 to -4% in 2009. The 2009 recession was caused by the housing crisis, and it had a negative impact on the economy and wellbeing of the population.

The Coronavirus pandemic impacted the whole world, and the economy went into a slowdown due to lockdown measures imposed by the government. The result was that there was a very sharp rise in unemployment, which rose to 14.8% but declined to 6.7% by the end of 2020. The annual GDP growth rate also declined sharply from 2% to -9% in 2020. However, the decline in inflation rate was relatively lower than that of the unemployment and GDP as it decreased from approximately 2.2% to 0%. The inflation did not decline significantly due to the stimulus packages by the United States government that ensured a constant circulation of money; hence, many people retained their purchasing power (Gavrilović & Vučeković, 2020). The economy has been opening up, and the current state is that the unemployment rate is 6.3%, GDP growth rate at -2.5%, and the inflation rate at 1.5%. The resumption of different economic activities will lead to an improvement in the growth of the economy.

The unemployment levels of men in the 2009 recession were higher than that of women; men experienced an 11% unemployment rate and women a 9% unemployment rate. Blacks also experienced the highest unemployment rates of 16.3%, while Hispanics had a 13% unemployment rate. The unemployment rate by gender and race was different in the Coronavirus pandemic. Women experienced the highest unemployment rates during the pandemic, which reached 16%, while the unemployment rate for men was 13%. The data also showed that Hispanics experienced the highest unemployment rate of 19%, followed by blacks at 17%, and whites at 15% during the pandemic. The differences in the unemployment rate by gender is bad for the economy as it shows that there is unutilized labor from a specific gender and racial group. From the analysis, black men have had the highest unemployment levels. High unemployment for one group can also lead to financial hardship, poverty, debt, poor housing, and social isolation, which are bad for the economy.

Reflection and Critical Thinking 

The data showed that the changes in unemployment, inflation, and GDP are interrelated. A recession can result in a negative GDP growth rate, an increase in the unemployment rate, and a decline in the inflation rate. During periods of economic expansion, the unemployment rate decreases, the GDP growth rate increases, and inflation increases. The reason for the difference is that recessions lead to many people being laid off, causing high unemployment rates. A high unemployment rate can lead to production falling, and the actual GDP will fall short of the potential GDP due to an output gap. Low unemployment levels mean that people lose their purchasing power and will not have the disposable cash to purchase certain goods and services. The result is that the price of goods will decline, and the inflation rate decreases.

Solution 

The current economic problems due to the pandemic can be solved using a monetary or fiscal policy. A monetary policy differs from a fiscal policy in that monetary policy refers to the activities of the central bank to influence the quantity of money and credit in the economy. In contrast, a fiscal policy refers to government decisions about spending and taxation. The monetary policy can involve Central Banks lending to the public and private sector and the government. Private enterprises such as small and medium-sized businesses can be given credit at reduced rates. The funds can also be directed to the public sector to expand financial services, food programs, and public works. A steady supply of goods will reduce the rate of inflation. The fiscal policy that can be implemented involves the government providing monetary relief and aid to businesses and people affected by the economic shutdown. The CARES Act ensures that people without employment can receive employment benefits (Bhutta et al., 2020). The government should also relax the economic closedown measures once the infection rate has been placed under control.

From my point of view, the best approach to solve the macroeconomic issue should involve the government putting up measures to open up the economy. The recent development and deployment of the vaccine mean that millions of people are now immune to the virus. Easing the lockdown will ensure that the economy can recover by itself. Other monetary and fiscal policies that involve adding funds to the economy can further impact the economy negatively as it can lead to inflation. The best option is for the government to strive to reduce various restrictions and allow for the economy to recover through the opening up of various businesses.

References 

Bhutta, N., Blair, J., Dettling, L. J., & Moore, K. B. (2020). COVID-19, the CARES Act, and families' financial security.  Available at SSRN 3631903 . https://dx.doi.org/10.2139/ssrn.3631903 

Fernald, J., & Li, H. (2019). Is slow still the new normal for GDP growth?.  FRBSF Economic Letter ,  17 . https://www.frbsf.org/economic-research/files/el2019-17.pdf 

Gavrilović, K., & Vučeković, M. (2020). Impact and consequences of the COVID-19 virus on the economy of the United States.  International Review , (3-4), 56-64. https://scindeks-clanci.ceon.rs/data/pdf/2217-9739/2020/2217-97392003056G.pdf 

Laird, J. (2017). Public sector employment inequality in the United States and the great recession.  Demography ,  54 (1), 391-411. https://doi.org/10.1007/s13524-016-0532-4 

Landivar, L. C., Ruppanner, L., Scarborough, W. J., & Collins, C. (2020). <? covid19?> Early Signs Indicate That COVID-19 Is Exacerbating Gender Inequality in the Labor Force.  Socius ,  6 , 2378023120947997. https://doi.org/10.1177%2F2378023120947997 

Sayeed, J., Islam, M. D., & Yasmin, S. (2019). Does the US economy face a long-run trade-off between inflation and unemployment?  International Journal of Monetary Economics and Finance ,  12 (2), 118-132. https://doi.org/10.1504/IJMEF.2019.100264