When inflation rises, real wages fall (real income: nominal wage minus price increase). Companies therefore demand additional labor, which increases employment. Inflation therefore leads to more employment. – However, this conclusion is demonstrably false. After all – businesses are not surprised by a higher inflation rate, if only because of rising menu costs. – The unions, under pressure from their members, can hardly tolerate inflation-caused loss of income for long; and they will very quickly push through higher collective agreements – as experience has taught them to overcompensate, i.e. to include the progress of inflation in advance. – See unemployment rate, inflation-stable, disinflation, money oversupply, real estate bubble, inflation, inflation compensation, purchasing power theory, wage-price spiral, menu costs, low interest rate policy, zero interest rate, nominal value principle, sacrifice ratio, growth-employment relationship, second-round effects. – Cf. ECB Monthly Bulletin of June 2011, pp. 12 ff. (assessing inflation since 1999 using a Phillips curve), ECB Monthly Bulletin of November 2013, pp. 102 ff. (link between underutilization and inflation), >German Bundesbank Monthly Bulletin of April 2014, p. 21 (HICP and unemployment; HICP and output gap; overviews; references).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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