Economic Analysis of UK Unemployment

The assignment delves into the economic analysis of UK unemployment trends, discussing the implications of a decline in unemployment rates. It explores concepts such as the Phillips Curve, trade-offs between wage and inflation, and the effects on consumer spending. The analysis also considers the viewpoints of monetarists regarding aggregate demand and supply, and the potential benefits and drawbacks of decreasing unemployment rates.

Running head: ECONOMICS ASSIGNMENT: NEWS ANALYSIS
Economics Assignment: News Analysis
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Authors’ Note

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ECONOMICS ASSIGNMENT: NEWS ANALYSISSelected News: UK unemployment falls to 1.44 million (BBC News) dated 24 January
2018
News Analysis
The news article published by BBC News dated 24 January 2018 presents report on declining
rate of unemployment as is evident from the official figures. Number of people engaged in
work enhanced sharply and simultaneously wages increased at a faster rate while decline in
real wages by 0.5% (UK unemployment falls to 1.44 million, 2018). Reports suggest that
higher demand level have the need to be associated to low supply that can lead to higher price
of labour. This leads to higher bargaining power of workers that can lead to raise wages and
enhancement in real interest rate by Bank of England. Decrease in real wages was witnessed
that continued to put pressure on consumer spending. Essentially, low wages can lead to low
unemployment rather than low unemployment operating as a catalyst for better payment.
The economic concepts and notions that can be associated to the current article is the trade
off between wage, unemployment and inflation. The concepts of Phillips Curve show that
there exists negative correlation between alteration in money wages of employees and
unemployment (Uribe & Schmitt-Grohé, 2017). For instance, increase in unemployment was
related to decreasing wage growth rate and vice versa. Essentially, an increase in aggregate
demand leads to high level of real GDP, thus, the firm engages more number of workers and
overall unemployment decreases. Nevertheless, an increase in inflationary pressure can be
observed when the economy gets near full capacity (Mankiw, 2014). Again, with low level of
unemployment, workers can necessarily ask for higher level of wages, whilst causing wage
inflation (Bernanke et al., 2015). In addition to this, corporations can exert pressure owing to
increase in demand.

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ECONOMICS ASSIGNMENT: NEWS ANALYSISAgain, as per opinion of monetarists regarding Phillips Curve, increase in overall aggregate
demand can direct the workers to demand higher nominal wages. At the time when they
accept higher level of nominal wages, they operate for longer hours as they believe that real
wages have necessarily increased. In addition to this, this enhancement in aggregate demand
directs the way towards inflation, thus, real wages remain at the same level (Heijdra, 2017).
At the time when they get to know that real wages are at the same level, then individuals
change their expectations regarding price and ceases to supply additional labour and the real
output gets back to the original stage. Thus, unemployment stays unaltered and this leads to
high rate of inflation. Viewpoints of monetarists regarding AD/AS reflects that enhancement
in aggregate demand leads to temporary augmentation in real output (Mankiw, 2014).
Therefore, there are certain implications and effects of event of decline in unemployment.
Essentially, less number of individuals might have the time to discover a more rewarding job.
Furthermore, reduction in the rate of unemployment might perhaps enhance the probability of
demand pull as well as cost push inflation, thereby making the economy more unbalanced.
Advantages of decreasing the rate of unemployment outweigh the overall costs. The effects
of unemployment are said to be beneficial as this leads to enhancement in level of output and
promotion of economic rate of growth that sequentially leads to augmentation in material
living standard.
Decline in the rate of unemployment in UK has various advantages namely optimal
production level, easier accessibility to job, higher buying power of consumers and less
borrowing by the government. The disadvantages of decline in unemployment in UK might
lead to rise in the level of inflation. Again, acceleration in particularly wage inflation can lead
to low level of unemployment that can sequentially dent profit. Essentially, unemployment
issues are mainly for players of the community (counting labour, government as well as
commerce). The decrease in unemployment can favourably affect labours as they can remain

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ECONOMICS ASSIGNMENT: NEWS ANALYSISunemployed. The government spending can also decrease with decline in rate of
unemployment. Additionally, decline in unemployment can lead to increase in consumer
spending that in turn can increase the overall demand for output. Thus, both producers as
well as consumers can get favourably affected by the decline in the rate of unemployment.

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ECONOMICS ASSIGNMENT: NEWS ANALYSIS
References
Bernanke, B., Antonovics, K., & Frank, R. (2015). Principles of macroeconomics. McGraw-
Hill Higher Education.
Heijdra, B. J. (2017). Foundations of modern macroeconomics. Oxford university press.
Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.
UK unemployment falls to 1.44 million. (2018). BBC News. Retrieved 26 February 2018,
from http://www.bbc.com/news/business-42802526
Uribe, M., & Schmitt-Grohé, S. (2017). Open economy macroeconomics. Princeton
University Press.