Faiza Mehmood

The relationship between inflation rate and unemployment rate had held the attentions of the economists over the year. It was believed that there was trade-off between inflation rate and unemployment rate. On the other hand, low unemployment rate can be accomplished by a higher rate of inflation This conviction is never again generally held, in any event as respects the long run.

People who do not work hard in their life and seeking good job opportunities there definitely unemployment happens. The unemployment rate is a measure of the universality of joblessness and it is computed as a rate by separating the quantity of jobless people by all people as of now in the work drive, so the unemployment rate refers to the percentage of the total labor force that is unemployed but actively seeking employment and willing to work. The inflation is an increase in the general level of prices of a given kind and inflation rate refers to the rate of change of prices (as indicated by a price index) calculated on a monthly or annual basis.

A great Economist named as William Phillips, belongs to   New Zealand, covered a paper in 1958 entitled as “Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, during the year 1861-1957. In his study he elaborates the inverse relationship between money wage changes and unemployment rate happened in   British economy over the session 1861-1957. Alike same patterns were also found in many other developing countries.in 1960 Paul Samuelson and Robert Solow reviewed Phillips’ work and found obvious relation in inflation and unemployment, they describe that as inflation rate was high, the unemployment rate was low.

The inflation rate and unemployment rate have been plotted against the years in the above graph. After having a look at the graph, one can judge the lose trending of inflation rate and unemployment rate but this trend is not an exact one. It seems that at some points of time when inflation tends to increase the level of unemployment also tends to increase, which is against the theory of Philips.

Unemployment has found as very serious problem in the list of macroeconomic issues. When any country suffers from unemployment, it won’t just put negative effect on the monetary pointers of that nation yet, it will likewise hurt the social standards of this country. Pakistan is a one of the developing country where the unemployment rate was calculated as 3.14 percent during the year 1973, which have been raised to 3.7 percent in the year 1980, there was a point in year 1989 where it is being decreasing and became 2.55 percent. After that the unemployment began expanding and it came to its most irregular amount 8.64 percent in the year 2003. Later on, the unemployment rate scopes to 5.34 percent in 2010. The trends of unemployment are shown in the following figure.

Unemployment was 3.14 percent in the year 1973; it increased to 3.7 percent in the year 1980, then it started declining and became 2.55 percent in the year 1989. After the year 1989; the unemployment started increasing and it reached to its highest-level 8.64 percent in the year 2003. Afterwards, the unemployment rate reaches to 5.34 percent in the year 2010. The trends of unemployment are shown in the following figure. In addition, unemployment and inflation is another macroeconomic problem which damages both financial and social pointers in any country. Pakistan has also suffered with macroeconomic problem. The inflation rate changed every year and tracked both upward and downward trend. It could be seen from the figure no. 2 for a case of Pakistan

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