Question

How is employment affected by inflation

Answer 1

On my view, if one country has inflation and workers didn't adjust their wages immediately, then this will cause unemployment. Let me explain in more details:

The inflation will reduce the purchase power of the workers and this will cause reduction on the demand on the market as a whole. When demand shrink, companies will see themselves producing too much of their products. The products wont be sold so easily and inventory will rose. After this, many companies will start to reduce its production and then the downsaizing of business will start, causing unemployment. This is difficult to see on the real world, because in countries that show a high inflation (like Argentina), the Government works to prevent the rise on unemployment rate.

When workers get wages above their productivity, inflation soon or later appear, and the adjustment will be necessary. In Brazil this is happening, the inflation got more than 10%, in 2015 and more than 6% in 2016 and we almost didn't expand our GDP because the demand shrinked a lot.