In the dictionary of foreign words, a crisis (from Gr. krisis - a turning point, a decisive outcome) is defined as: an exacerbated unstable situation; relative (compared to effective demand) overproduction of goods, which inevitably repeats itself in a market economy and leads to a decline in production, an increase in unemployment, etc.; abrupt change, break.
Economic theory interprets the concept of "economic crisis" as follows: "an imbalance between supply and demand for goods and services, generating a depressive process in the economic environment." In a broad sense - a general, or characteristic of a particular industry or region, the state of oppressed conjuncture. In the strict sense of the word, a crisis corresponds to the process of a sharp turn in the economic cycle from a phase of depression to a phase of rapid recovery.
Indeed, many scientists note an enviable constancy in the development of economic crises - all of them eventually lead to a sharp change in the relationship between the state, the population and the economy in various countries, and recently - all over the world. This is probably due to the fact that in an era of crises, state structures are more competitive in the labor market.
Jay Leibovitz notes that the secret of their success is extremely simple: the state, unlike commercial structures, always has financial resources at its disposal and can guarantee officials constant pay and social benefits. Even if the state salary is lower than the "commercial" one, many professionals opt for the state, as it promises greater stability (it is known that state structures carry out staff cuts much less often than private companies). Because of this, the popularity of public work increases significantly during periods of crisis.
Robert Higgs noted that the result of these processes, as a rule, is an improvement in the quality of the bureaucracy, which sometimes leads to positive changes in the activities of the entire state apparatus and the armed forces.
However, these changes are minimal, and society has to pay dearly for them. The fact is that, according to Higgs, in times of crisis, people tend to trust the authorities more and assume that officials act more efficiently than they actually do.
At the same time, talented officials successfully solve, first of all, purely bureaucratic tasks: in times of crisis, the size of power structures is constantly growing (never before in the history of the United States has their size returned to pre-crisis values), just like their powers. Thus, paradoxically, in the long run, the influx of talents into power only contributes to the degradation of power.
In times of economic crisis, government institutions often become more corrupt. This becomes a natural consequence of the growth of their influence on the economy. It is on officials that the future of commercial structures often depends: for example, the distribution of government orders or the allocation of financial assistance. This creates a breeding ground for corruption. The first wake-up calls have already been sounded: in early 2009, the influential public organization Transparency International warned of a possible increase in corruption around the world.
Another manifestation of the economic crisis is the growing popularity of military service in states where the army has been transferred to a professional footing. Young people, who are less likely to find themselves in civilian life, are more willing to sign contracts with the army. For example, in the last three months of 2008, the US Army exceeded its recruiting plan for the first time in 5 years.
But, as centuries-old practice has shown, every crisis ends sooner or later. Just as in nature, after a cold winter, there comes a time of flowering, then a harvest and a subsequent cold snap, there comes a time of economic stability, then an upsurge, and so on until the next recession. The economy develops cyclically.
The market is not always stable. Periods of instability are fraught with inflation, unemployment, and other severe social consequences. At the same time, instability may play into the hands of some companies. The market itself, of course, is gradually stabilizing, but this may take quite a long time. The state cannot completely eliminate market fluctuations, but it is able to smooth them out and reduce social tension.
In the development of the economy, the state is called upon to correct those shortcomings that are inherent in the market mechanism.
III. Market disinterest in solving social and global problems.
The market will not deal with social problems, as it does not bring any benefits. Only the state can pay benefits, pensions, etc. at the expense of taxes.
The market does not contribute to the conservation of non-reproducible resources, environmental protection, and cannot regulate the use of resources that belong to all mankind (the fish resources of the ocean). The market has always been focused on meeting the needs of those who have money.
There have always been such types of production that are "rejected" by the market mechanism. First of all, this is production with a long payback period of capital, without which society cannot do, and the results of which cannot be commensurate in monetary form: fundamental science, maintaining the country's defense capability, law enforcement, maintaining employment at the required level, maintaining the disabled, organizing education, healthcare , creation and maintenance of the normal functioning of the general economic structure (money circulation, customs control, etc.).
Inequality of income and wealth generated by the market mechanism everywhere and hourly. This mechanism itself is not at all aimed at overcoming too large differences in the well-being of citizens.
The situation can only be changed by regulating income and wealth. Only the state can solve such a complex problem. After all, this requires the creation of powerful systems of income redistribution and the implementation of other forms of social policy throughout the country.
Thus, in a mixed economic system, the state takes on several tasks (Fig. 1):
1) elimination of the consequences generated by weaknesses (imperfections) of the market;
2) mitigation of income and wealth inequality due to their partial redistribution.
In addition, the need for state regulation of the economy is determined by:
Ensuring the integrity of the territorial space of management;
The presence of natural monopolies;
Limited certain resources;
Creation and maintenance of a developed infrastructure, especially in Russia;
Figure 1. Economic functions of the state
Ensuring the reliability of information;
Ensuring the balance of economic interests of business entities;
§ legal support for the functioning of the market mechanism. Legal protection of producers and consumers is the most important function of the state.
First of all, the right of ownership must be secured. An owner who is not sure of the inviolability of his property will be afraid of its alienation and will not be able to use his creative and material potential to the fullest extent. Much attention is usually paid to antitrust regulation. The ability of individual firms to dictate their prices on the market and impose other terms of transactions is calculated, and measures to combat these phenomena are determined.
In the case of natural monopolies, the state may resort to setting / fixing prices for the goods of such a monopolist.
The state also seeks to prevent unfair methods of competition, the so-called destructive or destructive competition. For example, there may be a ban on dumping, that is, the sale of goods at bargain prices, usually with the aim of ousting rivals from the market. After competitors leave the market, the dumping firm increases its market share and raises prices in order to make excess profits.
Practically in all states of the world there are laws that protect exclusive rights (copyright, invention), which can also be attributed to measures to ensure fair competition. Income from works, inventions should be received by their creators. In Russia, copyright infringement is still flourishing.
The laws devoted to the protection of consumer rights are also very important, since their interests and the interests of entrepreneurs do not always coincide. The issue of consumer protection is also relevant in Russia.
The quality of many goods, as well as the level of service, is not always at a high level;
§ the fact that not all relationships between people are within the market. Thus, the exploration of deep space, the oceans require very high costs, but they are outside the market and are regulated by states.
State regulation of the economy is a system of measures of a legislative, executive and supervisory nature, carried out by authorized state institutions in order to adapt the existing socio-economic system to changing economic conditions.
In other words government regulation of the economy - this is a purposeful coordinating process of the government's managerial influence on certain segments of domestic and foreign markets through micro- and macroeconomic regulators in order to achieve economic growth and stability of the economic system.
TO objects of regulation include the national and international economy, individual sectors, industries and regions where problems arise that cannot be resolved through market regulators.
Subjects of regulation central (federal), regional and municipal authorities act.
The purpose of the course work is to consider the essence, structure, types and forms of such economic phenomena as unemployment, inflation, economic cycle. An attempt will be made to study the methodological foundations for regulating the relationship between employment and inflation, as well as an analysis of the problem of employment, unemployment and inflation in the Russian Federation. That is, the problem of macroeconomic instability will be revealed on the example of two manifestations: unemployment and inflation, because. most economists recognize these indicators as the most striking form of macroeconomic instability.
Introduction 3
1. What is macroeconomic instability and how does it manifest itself? five
1.1. The essence of the concept of macroeconomic instability 5
1.2. Main manifestations of macroeconomic instability 6
1.3 Business cycle: main macroeconomic indicators and 8
potential GNP
2. Unemployment 12
2.1. Essence of unemployment 12
2.2. Types of unemployment 14
2.3. Unemployment in Russia and dynamics of its level 17
3. Inflation 20
3.1 Causes of inflation 20
3.2. Measurement and indicators of inflation 24
3.3 Types of inflation 25
3.4. Mechanism of influence of inflation on the economy 27
3.5. Inflation in Russia 29
4. The relationship between inflation and unemployment: a general statement of the problem 31
Conclusion 33
References 36
The work contains 1 file
AONO VPO "Institute of Management, Marketing and Finance"
COURSE WORK
in the discipline "Economic theory"
Topic 44: Macroeconomic instability and features of its manifestation in the Russian economy
Completed: student gr. MA-114 T.N. Meshcheryakova
Supervisor: E.A. holy spirit
Grade:
Date of:
VORONEZH 2012
Introduction 3
1. What is macroeconomic instability and how does it manifest itself? five
1.1. The essence of the concept of macroeconomic instability 5
1.2. Main manifestations of macroeconomic instability 6
1.3 Business cycle: main macroeconomic indicators and 8
Potential GNP
2. Unemployment 12
2.1. Essence of unemployment 12
2.2. Types of unemployment 14
2.3. Unemployment in Russia and dynamics of its level 17
3. Inflation 20
3.1 Causes of inflation 20
3.2. Measurement and indicators of inflation 24
3.3 Types of inflation 25
3.4. Mechanism of influence of inflation on the economy 27
3.5. Inflation in Russia 29
4. The relationship between inflation and unemployment: a general statement of the problem 31
Conclusion 33
References 36
Introduction
It is known that any society develops unevenly. Each stage of development is characterized by progress - prosperity or regression - crisis. In the economic life of society, these concepts can be compared with the phenomenon of macroeconomic equilibrium or macroeconomic instability.
In an ideal economy, real GNP would grow at a fast, sustainable rate. In addition, the price level, as measured by the price deflator or the consumer price index, would remain unchanged or rise very slowly. As a result, unemployment and inflation would be negligible. But experience shows clearly that full employment and price stability are not achieved automatically.
Our society aspires to economic growth as well as full employment and stable prices, among other less calculable goals.
Unfortunately, the Russian Federation is characterized by manifestations of forms of macroeconomic instability in a very pronounced form. In addition, in Russia at present, many employment problems are veiled, hidden. Along with ensuring full employment, maintaining price stability is one of the most important goals of the national economy. Inflation, as well as unemployment, has serious negative economic and social consequences.
Unemployment and inflation (as the main indicators of macroeconomic instability) existed, exist and will continue to exist, since the economic system of any state cannot always function flawlessly. There will always be wage rigidity that prevents the wage level from being lowered to the equilibrium point and thereby gives rise to expectant unemployment; from time to time, states will be characterized by an imbalance between the money supply and commodity coverage, and so on. Thus, it is obvious that the relevance of the research topic is dictated by theoretical and practical circumstances.
The purpose of the course work is to consider the essence, structure, types and forms of such economic phenomena as unemployment, inflation, economic cycle. An attempt will be made to study the methodological foundations for regulating the relationship between employment and inflation, as well as an analysis of the problem of employment, unemployment and inflation in the Russian Federation. That is, the problem of macroeconomic instability will be revealed on the example of two manifestations: unemployment and inflation, because. most economists recognize these indicators as the most striking form of macroeconomic instability.
1. What is macroeconomic instability and how does it manifest itself?
1.1. The essence of the concept of macroeconomic instability.
To reveal the essence of the concept of "macroeconomic instability", in my opinion, it is necessary to have a clear idea of the state of macroeconomic equilibrium.
Macroeconomic equilibrium means such a choice in the economy that would suit all subjects of economic activity. The optimal choice in the economy offers a balance in the way of using limited production resources and their distribution among members of society, that is, a balance in production, consumption and use of resources, supply and demand, factors of production and its results, material flows.
The ideal balance will be the stable use of the economic potential of labor resources with the optimal realization of their interests in all structural elements of the national economy. Identification of violations and deviations from the ideal model makes it possible to find ways and means to eliminate them. In addition to the ideal and actual equilibrium, there is a partial equilibrium, that is, equilibrium in individual commodity markets, and a general equilibrium, which is a single interconnected system of partial equilibria.
Thus, from the foregoing, we can conclude that the theory of general economic equilibrium explains the process of coordinating the plans of economic entities under certain production possibilities and consumer preferences. This theory is static, since its goal is to determine the conditions that ensure the equality of supply and demand simultaneously in all markets.
To reveal the concept of “macroeconomic instability”, it is necessary to familiarize yourself with the main forms of its manifestation.
1.2. The main forms of manifestation of macroeconomic instability.
The main forms of manifestation of macroeconomic instability are:
The cyclicality of macroeconomic development, which is a periodic instability in the trend of long-term economic growth;
Inflation, which slows down scientific and technological progress, disorients capital investment, and hinders investment processes;
Imperfection of the taxation system, resulting in a reduction in total income;
Short-sighted actions of the state in the field of social policy, unreasonable expansion of social programs;
Unemployment, as a result of which the income of the population decreases, which, in turn, reduces savings, etc.
Consider the above forms of macroeconomic instability.
Cyclical nature of macroeconomic development.
In general, the crisis is a sharp reduction in production volumes, partial destruction of productive forces, overproduction of goods, bankruptcy of many enterprises, rising unemployment, falling wages, a sharp rise in the cost of credit and a drop in its volume.
As already mentioned, society develops unevenly, through ups and downs. Fluctuating economic dynamics has been observed for 170 years. The first economic crises date back to 1821 in England and 1840 in Germany. Since then, they have been repeated every 7–12 years. The crisis of 1873 was the first world economic crisis in the history of cycles. The causes of cyclicity are periodic depletion of autonomous investments, the weakening of the multiplier effect, fluctuations in the volume of the money supply, the renewal of "basic capital goods", etc.
Inflation.
Inflation is an increase in the general price level. This, of course, does not mean that all prices are necessarily raised. Even during periods of fairly rapid inflation, some prices may remain relatively stable while others fall. One of the main sore spots of inflation is that prices tend to rise very unevenly. Some bounce, others rise more moderately, and still others don't rise at all.
Taxation.
The state cannot exist without taxes. Taxes are mandatory payments levied by the state from legal entities and individuals in order to meet public needs. The legally fixed set of taxes, payments, principles of their construction and methods of collection forms the tax system.
Taxes are not only the main source of replenishment of state revenues, but also one of the main levers of state influence on the market economy. Therefore, the creation of an effective taxation system is one of the most important tasks of any country.
Unemployment.
Unemployment is a very common phenomenon not only in countries that have embarked on the path of market reforms, but also in many countries with market economies, especially in Western Europe, where it is quite high and exceeds 10% of the working population.
The phenomenon of unemployment in the country characterizes the degree of efficiency of employment of the population, since it indicates the presence of a part of the labor force - those who are willing, actively looking for a place to apply their abilities, but at a certain stage to no avail. Unemployment, as an official phenomenon, was recognized in the Russian Federation in 1991,after the adoption of Federal Law No. 1032-1 of April 19, 1991 "On Employment in the Russian Federation", which defined the categories of citizens who are recognized as unemployed.
Thus, we can conclude that all of the above forms of manifestation of macroeconomic instability are a very important factor affecting the economic climate of the state, therefore, each of these forms of manifestation of macroeconomic instability needs a more detailed description and study. But, proceeding from the fact that the most important forms of manifestation of macroeconomic instability are inflation and unemployment (which has already been mentioned), in the future only these forms of manifestation of macroeconomic instability will be studied in more detail, but first we will pay attention to such a concept as the cyclical development of the country's macroeconomics. .
Business cycle
The reasons for the cyclical development of the economy by individual theories are explained in different ways. External theories explain the economic cycle by external causes, the appearance of spots on the Sun, which lead to crop failure and a general economic decline (W. Jevons, V. Vernadsky); wars, revolutions and other political upheavals; the development of new territories and the migration of the population associated with this, fluctuations in the population of the globe; powerful breakthroughs in technology.
allowing to radically change the structure of social production. Internal theories consider the economic cycle as a product of internal causes: the ratio of optimism and pessimism in the economic activity of people (V. Pareto, A. Pigou); excess savings and lack of investment (J. Keynes); the contradiction between the social nature of production and private appropriation (K. Marx); violation in the field of money supply and demand (I. Fisher, R. Houtrn); overaccumulation of capital (M. Tugan-Baranovsky, G. Kassel, A. Spiethof); underconsumption and poverty of the population (T. Malthus), etc. Such an abundance of views is explained by the complexity and importance of this economic process.
Unemployment - it is involuntary unemployment arising as a result of a permanent imbalance between the demand and supply of labor both in the integrated labor market and in its various segments.
The term "unemployment" first appeared in the Encyclopædia Britannica in 1911, then used in 1915 in a US Department of Labor report. Currently, unemployment is present in all countries of the world in various volumes, forms, duration.
In economic theory, there are various approaches to explaining the necessity and possibility of unemployment.
One of the earliest explanations of unemployment is given by T. Malthes. He noted that unemployment is caused by demographic reasons, as a result of which the growth rate of population exceeded the growth rate of production. This theory is criticized and presented as untenable, because it does not explain the emergence of unemployment in highly developed countries with low birth rates.
Marxist theory regards unemployment as a historically transient phenomenon characteristic of a society based on private ownership of the means of production. The emergence of unemployment is associated with cyclical processes of capital accumulation and reproduction, with the growth of the organic composition of capital. The population of the hut is definitely not absolute, but relative to the need for capital. The consequences of unemployment are the absolute and relative impoverishment of employees.
The neoclassical school is represented by the works of D. Gilder, A. Laffer, M. Feldstein, R. Hall and others. The provisions of the classical theory of A. Smith are taken as the basis. It follows from the neoclassical concept that unemployment is impossible if there is an equilibrium in the labor market, because the price of labor flexibly responds to the needs of the labor market, increasing or decreasing depending on supply and demand. At present, representatives of this school recognize unemployment as a natural phenomenon that performs the function of a circulation of the unemployed part of the able-bodied population.
The main ideas of the Keynesian school can be briefly reduced to the following:
At a given level of investment and money wages, the economic system in any short run can be in a state of stable equilibrium with underemployment, which means the possibility of involuntary unemployment;
The main parameters of employment (the actual level of employment and unemployment, the demand for labor and the level of real wages) are not set in the labor market, but are determined by the amount of effective demand in the market for goods and services;
The mechanism of employment formation is based on psychological phenomena: the propensity to consume, to save, incentives to invest, liquidity preferences;
The main, decisive factor in the formation of employment is investment of optimal size. All means are good along this path, but the organization of various public works, up to the construction of pyramids, palaces, temples, and even digging and digging ditches, is especially effective from the point of view of expanding employment;
There should be a flexible wage policy. Representatives of the monetarist school explored the relationship
unemployment with the dynamics of real wages, inflation.
The institutional sociological school offered its vision of the problem from the standpoint of institutional problems, the creation of employment services and other social institutions.
In recent years, the most popular concepts of "natural", "normal", "socially acceptable" level of unemployment, exploring the relationship of unemployment and inflation, money circulation, equilibrium price of labor, the ratio of supply and demand for labor. The development of strategies and tactics of state regulation of employment, support for the unemployed is carried out using the methods of economic and mathematical modeling and graphical analysis (Marshall's crosses, Phillips curves, Beveridge curve, etc.). In the 60s, the natural rate of unemployment was considered to be 2-4% of the labor force, in the 80s this level increased to 6-7%.
The unemployed are able-bodied citizens who do not have work and earnings, are registered with the employment service in order to find work, are looking for work and are ready to start it. Modern forms of unemployment are as follows. frictional unemployment associated with professional, age, regional movements of workers. These are employees who, having left their previous place of work, are in the process of moving to a new place. A distinctive feature of this type of unemployment is voluntariness and low duration.
Structural unemployment is the result of changes in technology, technology and the structure of production, the structure of consumer demand, causing a discrepancy between the structure of jobs and the professional structure of workers. This type of unemployment, as a rule, is of a long-term nature, requires additional costs for society and individuals for retraining, changing their place of residence.
cyclic unemployment is due to the cyclical nature of the reproduction process in a market economy. It increases during a crisis and decreases during an economic recovery. Unemployment especially increases during the period of transition to new technological methods of production on the basis of all-encompassing revolutionary shifts in engineering, technology, and the organization of production.
Seasonal unemployment is due to seasonal fluctuations in the volume of production of certain industries: agriculture, construction, crafts, in which sharp changes in the demand for labor occur during the year. The size of seasonal unemployment can be predicted and taken into account when signing contracts between the employer and the employee.
Regional unemployment arises as a result of disproportions between the demand and supply of labor in a given territory; It is formed under the influence of uneven economic development of territories, is influenced by demographic, historical, cultural and other specific factors.
To the duration of unemployment can be distinguished stagnant and fluid forms. Duration of unemployment is measured by the time interval between job loss and employment W
new workplace.
The current form of unemployment is characterized by the dismissal of Inca jobs from enterprises at their own request and the initiative of the administration. The reasons for layoffs are very diverse, they are both objective and subjective.
Voluntary unemployment is due to the fact that a certain number of workers enter the labor market and become voluntary unemployed for one reason or another (in order to find a more productive job, with better working conditions and pay, etc.).
Unemployment can be open and hidden, long-term and short-term. Long-term unemployment includes cyclical and structural unemployment, while short-term unemployment includes seasonal and frictional unemployment. There are repeated (periodic) and "stagnant" unemployment in the country's economy, taking into account people who are desperate to find work and who have finally left the labor force.
The socio-economic consequences of unemployment can be formulated as follows: there is a depreciation, underutilization of the human potential of society, the quality of life of the unemployed and their families is deteriorating, pressure on the wages of those employed by those competing in the labor market is increasing, the costs of society and the individual to restore or change professional status and level of productive labor, categories of persons with devinant behavior are formed, prone to actions that are contrary to accepted social norms and values.
Among the factors influencing the dynamics of unemployment, the following are fundamental:
1. Demographic factors - a change in the share of the economically active population as a result of shifts in the birth rate, mortality, sex and age structure of the population, average life expectancy, in the directions and volumes of migration flows.
2. Technical and economic factors - the pace and direction of scientific and technical progress, causing labor savings. The destruction of high-tech Russian industries, the implementation of the conversion without taking into account the economic and social consequences at all levels created the threat of mass bankruptcy of enterprises and an avalanche-like release of labor.
3. Economic factors - the state of national production, investment activity, financial and credit system, the level of yen and inflation. According to the law formulated by A. Oken, there is a negative relationship between the unemployment rate and the volume of GNP, each "burst" of unemployment is associated with a decrease in the real volume of GNP.
Unemployment rate UL,%, is determined by the formula:
where is the number of unemployed, N- number of labor force.
In world practice, to calculate the economic losses from unemployment P and used Okun's law:
P i \u003d GNP P - GNP f,
where GNP P, GNP f- potential and actual gross national product, respectively.
According to Okun's law, an increase in the actual level of unemployment above its natural level by 1% means that the actual GNP lags behind the potential one by 2.5%; 2.5 - Okun's ratio:
where is the actual UL- natural rate of unemployment.* The difference between the actual and natural rate of unemployment characterizes the level of opportunistic unemployment.
There is a relationship between unemployment and inflation, first recorded in the 50s by A. Phillips in the form of a curve.
The Phillips curve characterizes the inverse relationship between inflation rates and the unemployment rate: the higher the inflation rate, the lower the unemployment rate. Government intervention can reduce unemployment by expanding aggregate demand. The resulting tension in the labor market will contribute to the growth of wages, prices, and consequently, the deployment of inflation. To reduce inflation, it is necessary to pursue a policy of limiting demand, which leads to the curtailment of production, the growth of the unemployed. The increase in the latter becomes the society's payment for the implementation of anti-inflationary policy.
Economic instability: inflation and unemployment
There are almost no countries in the world where there was no inflation in the second half of the 20th century. Inflation and unemployment are considered the most severe phenomena in terms of their socio-economic consequences in market conditions. Their occurrence is inevitably associated with the cyclical nature of the development of the economy, when neither full employment nor a stable price level is achievable.
Causes of inflation
First, the imbalance of public expenditures and revenues, expressed in the state budget deficit. If this deficit is covered by the emission of money (issuance), the amount of money in circulation grows.
Secondly, the growth of military spending is one of the main causes of chronic state budget deficits and an increase in public debt, to cover which the state prints new money. Also, military appropriations create additional solvent demand, which leads to an increase in the money supply without an appropriate commodity coverage.
Thirdly, the general increase in the price level in the country is associated by various schools in modern economic theory and with a change in the structure of the market in the 20th century. The modern market is a market of imperfect competition. An imperfect competitor has a certain degree of power over price. An imperfect competitor seeks to maintain a high level of prices, for the purpose of which it reduces the production of goods, limits the influx of new producers.
Fourthly, with the growth of the "openness" of the economy of a particular country, its ever greater involvement in world economic relations, the danger of "imported" inflation increases. For example, the 1973 energy crisis caused a rise in the price of imported oil. Prices for other goods also rose.
Fifth, inflation becomes self-sustaining as a result of so-called inflationary expectations. Many scientists in Western countries and in our country emphasize this factor, emphasizing that overcoming inflationary expectations of the population and producers is the most important task of anti-inflationary policy.
Sixth, the cause of inflation is the reduction in the real volume of national production. It may be due to rising wages leading to higher production costs, a cyclical downturn in the economy, industrial restructuring, disruption of economic ties, etc.
A decrease in real output with a stable money supply leads to an increase in inflation, as a smaller volume of goods and services is opposed by the same amount of money. However, this reason, in comparison with the first two, does not play a significant role in the inflationary process. So, if in Russia for the 1990s. production decreased by about 2 times, then the rise in the price level during this period amounted to thousands of percent. This means that the main cause of inflation is the growth of the money supply and the velocity of money circulation. It causes so-called demand-pull inflation. The fall in production causes cost-push inflation.
What is the mechanism of influence on the economy of inflationary expectations? The fact is that people, faced with an increase in prices for goods and services for a long period of time and losing hope for their decline, begin to purchase goods in excess of their current needs. At the same time, they demand an increase in nominal wages and thereby push the current demand to expand. Expansion of current demand contributes to higher prices. Savings and credit resources are reduced, which holds back the growth of investment, and, consequently, the supply of goods and services. The economic situation in this case is characterized by a slow increase in aggregate supply and a rapid increase in aggregate demand. The result is a general increase in prices.
Many causes of inflation are observed in almost all countries. However, the combination of various factors in this process depends on the specific economic conditions. So, immediately after the Second World War in Western Europe, inflation was associated with an acute shortage of many goods. In subsequent years, government spending, the price-wage ratio, the transfer of inflation from other countries, and some other factors began to play the main role in unwinding the inflationary process. In the former USSR, along with general patterns, the most important cause of inflation in recent years can be considered a unique disproportionality in the economy that arose as a result of the command-administrative system. The Soviet economy is characterized by an excessive share of military spending in GNP, a high degree of monopolization of production, distribution and the monetary system, a low share of wages and other features.
The well-known economist V.Novozhilov noted that the complexity of the problem of inflation and, at the same time, its Achilles heel is that it is extremely difficult to adjust the amount of money to the amount of goods, and it is not so difficult to produce paper money in the desired amount and, most importantly, it costs practically nothing. . This is a huge temptation for those who have the right to create money. The personal interest of everyone who creates "non-material" money is to create more and more of them; for money there is no limit to saturation, for them there is no limit to overproduction. True, Novozhilov went on, money depreciates in excess, but it is worthless. And if the entire national economy does not benefit from an excess of money, then the issuer receives a very real increase in wealth, the source of which is the damage to those who are far from the emission.
Inflation can also be defined as an imbalance between supply and demand. Based on this, a distinction is made between demand-side inflation and supply-side inflation (or cost-push inflation).
With inflation of demand, the violation of the relationship between supply and demand comes from the side of demand. The main reasons for this may be the expansion of state orders (military and social), an increase in demand for means of production in conditions of full and almost 100% utilization of production capacities, as well as an increase in the purchasing power of workers due to wage growth as a result of the concerted actions of trade unions. As a result, there is an excess of money in circulation in relation to the quantity of goods, and prices rise.
Cost-push inflation refers to an increase in prices due to an increase in production costs. The reasons for the increase in costs may be the oligopolistic practice of pricing and the financial policy of the state, the rise in prices for raw materials, the actions of trade unions demanding higher wages.
Since the general increase in prices leads to a decrease in the real incomes of the population, both the demands of trade unions to increase the nominal wages of workers and the state policy of compensating monetary losses from inflation are inevitable. There is a vicious circle, the so-called inflationary spiral: rising prices cause demands for higher incomes of the population. And the growth of wages leads to an increase in the costs of entrepreneurs, and hence the prices of goods.
The concept of unemployment.
The International Labor Organization (ILO) defines unemployment as a contingent of persons over a certain age who are unemployed, currently fit for work and looking for it in the period under review. A person can be considered unemployed only if all three conditions are met. Looking for a job means taking action in this direction. Such actions include registering at the labor exchange, contacting employers, constantly appearing in places where work can be obtained (farms, factories, labor markets), placing advertisements in newspapers or responding to relevant advertisements in the press, etc.
Consider how unemployment is measured.
First, the entire population of the country is divided into two parts.
The first part includes the economically inactive population - residents of the country who are not part of the labor force: a) students and students of daytime educational institutions; b) pensioners (for old age and other reasons); c) persons who run the household (including those who care for children, the sick, etc.); d) desperate to find a job; e) persons who do not need to work (regardless of their sources of income).
The second part includes the economically active population - this is the share of the number of economically active people in the total population. This level is calculated by the formula
Level of economically active population;
Population;
economically inactive population.
In turn, the economically active population is divided into two groups.
The first group includes employed persons - persons aged 16 years and older (as well as persons of younger ages) who: a) worked for wages (on a full or part-time basis); b) worked without pay in family businesses.
The second group includes the unemployed - persons aged 16 and older who: a) did not have a job (profitable occupation); b) searched for work (applied to employment services, etc.); c) were ready to start work; d) were trained in the direction of the employment service.
Based on data on employment and unemployment, the unemployment rate is determined. Unemployment rate () - the share of the number of unemployed in the economically active population ().
%
When analyzing unemployment, economists are not limited to nominal unemployment rates. Unemployment is never evenly distributed among the population of a country. Some groups of the population suffer from unemployment more than others, and unemployment in all groups without exception is explained by a wide range of reasons.
Statistics show that in developed countries, unemployment is on average slightly higher among women than among men. Significantly greater differences are observed for individual age groups. Thus, unemployment among teenagers (teenagers aged 13 to 19) is almost 3 times higher than among adults. This applies, however, not to all countries. In Germany, for example, the unemployment rate among teenagers is much lower than in the United States or Great Britain, due to the highly developed system of vocational training and vocational guidance of schools, as well as direct training of personnel in the workplace, which reduce to a minimum the period of unemployment at the beginning of a person's working life.
One of the features of Russian unemployment is that it is practically not influenced by the national-ethnic factor, despite the fact that Russia is heterogeneous in terms of the national composition of the population. The same cannot be said for many other developed countries, in particular the United States, where the unemployment rate among the colored population is several times higher than among the whites.
Causes of unemployment
Economists explain the causes of unemployment in a market economy in different ways. In general, one could single out the following approaches to explaining this phenomenon: a) population surplus (Malthusianism); b) the growth of the organic composition of capital (Marxism); c) a high level of wages (neoclassics); d) insufficient aggregate demand (Keynesians).
The neoclassical and Keynesian concepts of unemployment are most widely used in Western economic science.
The neoclassical concept of unemployment in the most consistent form was presented by the famous English economist A. Pigou in his book The Theory of Unemployment, published in 1933.
The main provisions of A. Pigou are as follows:
a) the number of workers employed in production is inversely related to the level of wages, i.e., the lower the employment, the higher the wage;
b) existed before the First World War 1914 - 1918. the balance between the level of wages and the level of employment is due to the fact that wages were established as a result of free competition among workers at a level that ensured almost full employment;
c) the strengthening of the role of trade unions after the First World War and the introduction of a state unemployment insurance system made wages inflexible, allowing them to be kept at too high a level, which is the cause of mass unemployment;
d) to achieve full employment, a reduction in wages is necessary.
Thus, in the neoclassical model, the market economy is in principle able to use all labor resources, but only under the condition of wage flexibility. Full employment in this case means that everyone who wants to sell a certain amount of labor at the current wage rate can fulfill his desire. Consequently, in the neoclassical model, unemployment is real, but it does not follow from the laws of the market, but arises as a result of their violation, interference in the competitive mechanism either by the state or trade unions, i.e., non-market forces. These forces do not allow wages to fall to the equilibrium level, as a result of which entrepreneurs will not be able to offer work to everyone who wants to work at the required wage rate.
Therefore, according to the neoclassicists, in a market economy there can only be voluntary unemployment, i.e., one that is caused by the requirements of high wages. Workers themselves choose unemployment, because they do not agree to work for lower wages. The same can be said about the role of the state: if it regulates the level of wages, it violates the competitive market mechanism. Hence the demands of neo-liberal economists - in order to eliminate unemployment, it is necessary to achieve competition in the labor market, wage flexibility.
At the same time, in the neoclassical model, unemployment can also occur while maintaining wage flexibility, since some part of the labor force will remain unemployed of their own free will, claiming higher wages.
The neoclassical concept of voluntary unemployment, outlined in the above-mentioned book by A. Pigou, became the subject of serious criticism by J. Keynes in his fundamental work "The General Theory of Employment, Interest and Money", written in the hot pursuit of the Great Depression.
In the Keynesian concept of employment, it is consistently and thoroughly proved that in a market economy, unemployment is not voluntary (in its neoclassical sense), but forced. According to Keynes, neoclassical theory is valid only within the sectoral, microeconomic level and, therefore, it is not able to answer the question of what determines the actual level of employment in the economy as a whole. Keynes, on the other hand, showed that the volume of employment is quite definitely related to the volume of effective demand, and the presence of unemployment is due to the limited demand for goods.
Outlining his views, J. Keynes refutes the theory of A. Pigou, shows that unemployment is immanent in a market economy, follows from its laws. In the Keynesian concept, the labor market can be in equilibrium not only with full employment, but also with unemployment. This is due to the fact that the supply of labor, according to Keynes, depends on the value of nominal wages, and not on its real level, as neoclassical thought. Therefore, if prices rise and real wages fall, workers do not refuse to work. The demand for labor presented in the market by entrepreneurs is a function of real wages, which changes with a change in the price level: if prices rise, workers will be able to buy less goods and services, and vice versa. As a result, Keynes comes to the conclusion that the volume of employment to a greater extent depends not on workers, but on entrepreneurs, since the demand for labor is determined not by the price of labor, but by the effective demand for goods and services. If the effective demand in a society is insufficient, because it is determined primarily by the marginal propensity to consume, which falls as income rises, then employment reaches an equilibrium level at a point located below the level of full employment.
In addition, the employment of a significant part of the labor force is determined by such a component of total costs as investment. The relationship between employment growth and investment characterizes the employment multiplier equal to the demand multiplier. An increase in investment leads to an increase in primary employment in industries directly related to investment, which in turn has an impact on industries that produce commodities, and as a result, all this leads to an increase in demand, and hence aggregate employment, the increase of which exceeds an increase in primary employment directly related to additional investment.
Employment, according to Keynes, is a function of the volume of national production (income), the share of consumption and savings in ND. Therefore, to ensure full employment, it is necessary to maintain a certain proportionality between:
a) the cost of creating GDP and its volume;
b) savings and investments.
If the cost of producing GDP is insufficient to ensure full employment, unemployment occurs in society. If they exceed the required size, inflation occurs.
With regard to "savings - investment", if savings are greater than investment, then a strong flow of capital investments, growth in production and supply, on the one hand, and low current demand (due to large savings) on the other, lead to a crisis of overproduction, a drop in demand for labor power and unemployment. The excess of investment over savings leads to the fact that productive demand is not satisfied due to a lack of savings. In addition, the flip side of low savings is a high propensity to consume, which ultimately leads to an increase in the price level, i.e. inflation.
The Keynesian concept draws two important conclusions:
a) the flexibility of prices in the commodity and money markets, as well as wages in the labor market, is not a condition for full employment; even if prices did fall, this would not lead to a reduction in unemployment, as the neoclassical thought, since when prices fall, the expectations of capital owners regarding future profits fall;
b) in order to increase the level of employment in society, active government intervention is necessary, since market forces are not able to maintain equilibrium at full employment.
Types of unemployment
Economists distinguish mainly three types of unemployment: frictional, structural and cyclical.
Frictional unemployment is generated by the constant movement of the population from one region (city, town) to another, a change in profession, life stages (study, work, childbirth and care for him, etc.). Unemployment arising from these motives is considered as voluntary, since people change their place of residence, work, profession, decide to study or have a child, frictional unemployment always exists, it is inevitable. Its main feature is low duration. For example, in the United States in the late 1980s. about 50% of the unemployed were unemployed for less than 5 weeks, and 80% of the unemployed for about 14 weeks. This suggests that American unemployment is largely frictional in nature, which indicates a fairly high efficiency of the labor market, a normal process of redistribution of resources in the economy, and not a serious social problem. An essential feature of such unemployment is also that people looking for a job have the necessary qualifications, training and skills. There is demand from firms for their ability.
Voluntary refusal to work is not limited to frictional unemployment. Voluntary unemployment occurs, as already mentioned, when a person does not want to work for low wages. In addition, in any society there is a certain percentage of people who do not want to work at all (in Western countries, their share in total reaches 15%). This category includes wealthy people who can afford not to work, because they do not need income from labor. This also includes a kind of "inborn parasites" (homeless people, clochards, etc.), for whom vagrancy is a kind of lifestyle, a psychological attitude. Some people receive income from other sources (they are dependent on their spouses, the state) and believe that the income they receive does not compensate them for the loss of leisure or non-market activities, including housework and raising children. Finally, the category of voluntary unemployed often includes low-skilled people who cannot count on high wages, as well as workers in countries where taxes are so high that labor income does not bring tangible net profit.
Structural unemployment arises as a result of a mismatch between the demand for labor and the supply of labor associated with technological changes in production, which also give rise to structural changes in the demand for labor. For this reason, structural unemployment is sometimes called technological unemployment. Under the influence of technological changes, the demand for some types of professions stops and employers are looking for specialists with new professions. In addition, there are changes in the territorial distribution of the labor force, as a result of which the unemployed population may accumulate in certain regions. In the 1990s in Russia and other CIS countries, unemployment increased to a large extent due to the structural component, since, on the one hand, the demand for many specialties began to fall sharply (engineers, designers, research workers, etc.), and on the other hand, there was a need for new professions (bank employees, accountants, businessmen, managers, security guards, etc.).
Structural unemployment differs from frictional unemployment in that it has a longer duration. Frictional unemployed, as a rule, have the opportunity to get a job without additional retraining, as the demand for their professions remains in the labor market. On the contrary, the structural unemployed sometimes need not only retraining, but also a change of residence.
Frictional and structural unemployment is also called natural unemployment. The concept was introduced into economics by M. Friedman in 1968 and independently developed by another American scientist, E. Phelps.
Natural unemployment characterizes the best reserve of labor for the economy, capable of fairly quickly making intersectoral and interregional movements, depending on the needs of production. Just as a factory needs spare parts in case a machine breaks down, so an economy needs spare, unemployed workers ready to go to work whenever a vacancy arises. Essentially, natural unemployment is the proportion of the unemployed that corresponds to the expedient level of full employment in the economy, i.e. potential GDP.
The concept of full employment does not mean that all people of working age are employed in social production, since frictional and structural unemployment are inevitable. The unemployment rate at full employment is determined by a number of factors, and, above all, by the minimum wage. Its low level contributes to the fact that the terms of job search by young people who are looking for a job for the first time, as well as by those unemployed who are looking for a better paid job, are lengthened.
The natural rate of unemployment is also affected by the system of social insurance against unemployment, the authority of trade unions, the propensity of people to work, differences in growth rates by sectors of the economy, taxes, etc. Since these factors are volatile, the rate of natural unemployment changes over time.
Calculations show that the level of natural unemployment increases with an increase in actual unemployment. An increase in unemployment during periods of decline in production ends with its return not to its original level, but to a higher natural level. So, if in the first half of the 1970s. it was 1.1% in Germany, 6.5% in Canada, 5.4% in the USA, then in the mid-1980s. it was equal, respectively: 7.2; 10.5; 7.2%. This is explained both by the "rusting" of human capital and by the different bargaining power of the employed and the unemployed. The latter do not participate in negotiations on working conditions and the wage rate, while the workers are interested in the fact that the increase in demand for labor in the boom phase is transformed into an increase in the wage rate, and not into an increase in the number of employees.
To determine the level of natural unemployment, economists use the average value of actual unemployment over a long period. The average value for 40-50 years smooths out cyclical fluctuations. With this calculation, the natural rate of unemployment for the period from 1948 to 1985 in the United States was 5.6%.
Unemployment at the natural rate is necessary because it keeps inflation in check. In a full-employment economy, any surge in aggregate demand AD results in a rise in the price level, as production cannot adequately respond to increased demand due to a lack of resources (Figure 9.1).
The actual unemployment rate in a given period may be higher than the natural level, in which case there will be a deficit in aggregate demand and cyclical unemployment. Consequently, cyclical unemployment is associated with fluctuations in the economic environment. During the recession phase in the economy, the demand for goods and services decreases, which leads to a reduction in production and employment. In the upswing phase, on the contrary, the demand for consumer and investment goods, and hence for labor, grows.
The level of cyclical unemployment u c is defined as the difference between the actual u and natural u* unemployment rates:
u c \u003d u - u *.
Cyclical unemployment indicates the incomplete use of productive resources. In this case, the actual volume of national production Yf is below the potential Y*. If the actual level of GDP is equal to potential Y f= Y*, then the natural unemployment rate is equal to the actual u = u*. In this case, there is no cyclical unemployment.
Therefore, the lower the actual GNP compared to potential, the greater the cyclical unemployment:
Y f< Y* Þ u >u* .
Difference between potential GDP Y* and actual Y f forms a market gap (GDP gap), the analysis of which in the 1960s. conducted by an American economist A. Oken. On the basis of empirical research, he found a stable relationship between the magnitude of cyclical unemployment and the GDP gap.
He expressed the established dependence by the formula
,
where g is Okun's number (parameter).
The meaning of this formula expresses the so-called Okun's law: if cyclical unemployment increases by 1%, then actual GDP lags behind potential GDP by g%.
Observations show that the Okun parameter is different for different countries. In the 1960s in the United States, according to Okun's own calculations, when the natural unemployment rate was 4%, the parameter g was 3%. This means that each percent of cyclical unemployment reduced the actual volume of GDP by 3% compared to GDP at full employment.
Suppose the natural unemployment rate u* is 6%, and the actual u is 9.5%. In this case, the gap between actual GDP and potential GDP will be: (9.5 - 6) x 3 = 10.5%. Knowing the volume of GDP, we obtain the absolute underproduction of GDP from unemployment. If, for example, GDP is $500 billion, then its underproduction will be $52.5 billion (500 billion x 0.105). Such will be the economic losses of society from unemployment.
It also follows from Okun's law that if production falls by 3% during a downturn, this increases cyclical unemployment by 1%. In addition, the law states that the annual growth of real GDP must be 3% in order for unemployment to remain at the same level, since the labor force is growing at about this rate every year.
As for the Russian economy, it can be assumed that at present the Okun coefficient here is a little over 5%. The fact is that the fall in GDP in Russia in the 1990s. was about 50%, and the unemployment rate - 9.3%. In the first half of the 1990s. Okun's coefficient was even higher - 10, since during this time production decreased by 40%, and unemployment increased by only 4%.
Why didn't unemployment rise in Russia against the backdrop of such a rapid decline? In other words, why is Okun's ratio so high? The explanation should be sought, firstly, in the fact that in Russia in the first years of reforms, accompanied by a recession, it was not jobs as such that were reduced, but vacancies; secondly, in pursuing a soft monetary policy aimed at supporting enterprises and their employees, at maintaining wage payments, despite the decline in production, etc.; thirdly, in the preservation of the collective-group nature of property, which was established in the course of voucher privatization. It is known that in the process of voucherization, the so-called second variant of privatization won, according to which the ownership of the means of production passed into the hands of labor collectives.
Examples of problem solving.
Unemployment rate = 10,000/100,000 * 100% = 10%.
According to Okun's law, an excess of unemployment above the natural rate by 1% leads to a fall in GNP by 2.5%. In accordance with this, the actual GNP is less than the potential one by 10%. To solve the problem, we make a proportion:
Potential GNP -100%
180,000 monetary units (actual GNP) - 90%.
Potential GNP will be 200,000 monetary units.
Tests.
1. Which definition of inflation do you think is correct?
a) an increase in prices in the economy;
b) a drop in production;
c) a fall in the purchasing power of money;
d) a phenomenon that is possible with both rising and stable price levels.
2. Which of the following causes demand-pull inflation?
a) rising prices for raw materials and transport services;
b) an increase in the interest rate;
c) higher wages in well-performing enterprises;
d) growth in government spending;
e) decrease in investments.
3. Cost-push inflation is caused by:
a) falling prices for equipment, raw materials and materials;
b) rising prices for factors of production;
c) an excess of aggregate supply over aggregate demand;
d) freezing wages and prices.
4. Unemployment in a market economy can be the result of:
a) unwillingness to work at the existing wage rate in the market;
b) the excess of aggregate supply over aggregate demand;
c) changes in the structure of demand for goods and services;
d) all of the above reasons.
5. In accordance with the classical theory of employment, there is only:
a) frictional unemployment
b) structural unemployment;
c) cyclical unemployment;
d) voluntary unemployment;
6. The Keynesian theory of employment states that:
a) natural methods of population regulation are needed;
b) market equilibrium guarantees full employment;
c) unemployment grows out of the internal laws of the market;
d) in a market economy, unemployment is only voluntary.
7. The Phillips curve captures the relationship between the inflation rate and:
a) money supply
b) the unemployment rate;
c) the level of interest;
d) the political economic cycle;
e) the real rate of interest.
8. Who will be the least affected by unexpected inflation:
a) those whose nominal income grows, albeit more slowly than prices rise;
b) those who have money savings;
c) those who became debtors during the pre-inflationary period;
d) all of the above.
9. Inflation caused by excess demand is characterized by a shift in the curve:
a) aggregate supply to the left;
b) aggregate demand to the left;
c) aggregate demand to the right;
d) aggregate supply to the right.
10. The adult population of the country is 150 million people. The number of employed is 90 million people, the unemployment rate is 25%. The economically active population will be:
a) 100 million people;
b) 120 million people;
c) 140 million people;
d) 160 million people
conclusions
1. Inflation is one of the forms of macroeconomic instability of the market economy, causing a number of disruptions in economic relationships and having a devastating effect on production, distribution and exchange, on the motivation of workers, on the functioning of the entire market mechanism.
2. Inflation can take different forms: open and hidden (repressed); creeping, galloping and hyperinflation; demand-pull and cost-push inflation; predictable and unpredictable.
3. Open inflation manifests itself in a continuous rise in the price level, which forms adaptive inflationary expectations among business entities, while hidden inflation manifests itself in an increase in the shortage of goods and services, which ultimately results in a deformation of the market mechanism, since economic agents are deprived of price signals.
4. The division of inflation into creeping, galloping and hyperinflation is carried out depending on the speed of inflationary processes.
5. Demand-pull inflation is generated by an excess of aggregate demand over aggregate supply, cost-push inflation (sellers' inflation) - by rising prices for factors of production.
6. Forecast inflation is inflation that is taken into account in the expectations and behavior of economic entities before its implementation. Unpredictable inflation is inflation that comes as a surprise to the population, in connection with which redistribution processes are observed in society that enrich some groups of the population at the expense of others.
7. The fight against inflation is possible only at the macroeconomic level and by the state. Anti-inflationary measures can only be applied to open inflation; the repressed is beyond limitation because it cannot be measured. The set of government measures to combat inflation includes:
a) limiting the money supply;
b) an increase in the discount rate;
c) an increase in the required reserve ratio;
d) cutting government spending;
e) improvement of the tax system and increase in tax revenues to the budget.