Mobility of labour

Mobility of labour

Mobility of labour refers to how easily workers can move to different jobs within the economy. The two main factor of labour mobility are: Geographical mobility – how easy is for a worker to move between different regions and countries to seek new work. Occupational mobility – how easy is it for a worker to move from one occupation to another. We can also distinguish between an individual’s labour mobility and overall labour mobility for an economy. Personal labour mobility – each individual will have his own unique set of…

Shrinkflation

Shrinkflation

Shrinkflation occurs when firms reduce the size or quantity of a good and keep prices the same. Shrinkflation is an alternative to increasing prices, and you could argue it is a disguised form of inflation because if you wanted to buy exactly the same quantity of the good, you would have to spend relatively more. However, shrinkflation won’t show up in the consumer price index because prices stay the same. Examples of Shrinkflation In 2009 a Mars bar was reduced in…

Positive feedback loop

Positive feedback loop

A positive feedback loop is a situation where two events are mutually reinforcing. With this situation a small change in one input can cause a bigger final increase in both the initial input and the secondary effect. Suppose, there is a rise in demand for buying a commodity. This rise in demand leads to rising prices. However, rising prices can encourage many investors to take interest in the commodity and also buy the commodity. Therefore, the rise in price encourages more demand. Positive feedback loop – house prices

Challenges of making economic forecasts

Challenges of making economic forecasts

All economic forecasts are subject to margins of error. This is because: There are many variables affecting the economy. For example, the role of shadow banking was largely ignored in 2007 forecasts, but failed sub-prime mortgage debt had a much bigger impact on the wider economy than ever before. There is always a big element of uncertainty, e.g. how will consumers react to certain events, e.g.what will happen to oil prices? It is hard to know even the actual state of the economy (delays in getting data, data incomplete) In…

The gig economy

The gig economy

The gig economy refers to the segment of the labour market which concentrates on short-term / temporary jobs and contracts. Often these workers can have more than one job, e.g taxi driver who works both for traditional taxi company and Uber. Like a musician who goes from one gig to the next, the gig economy refers to a growing range of workers who don’t have typical stable employment, but work as self-employed and temporary contractors. The number of people who work for themselves…

Low inflation and high growth

Low inflation and high growth

Readers question: “Can an economy achieve low unemployment, low inflation and economic growth at the same time?” To achieve low unemployment, low inflation and economic growth at the same time is possible. For example, the UK economy 1993-2006 saw a prolonged period of low inflationary growth. Since early 2000, the Chinese economy has been growing at a rapid rate, with inflation staying relatively muted (with some exceptions e.g. 2008) For low inflation and high economic growth to occur, we need to see growth in aggregate demand and aggregate supply (productive capacity)….

Economic changes from railways

Economic changes from railways

I’m currently reading a book Blood, Iron and Gold by Christian Wolmar about how railways transformed the world. This interesting extract from the political economist Friedrich List, explains some of the economic benefits of railways: Railways would carry wood, turf and coal at less than half the present costs. Bavaria, where flour, meat and other foodstuffs are 50 – 100 per cent cheaper than in Leipzig, could export its surplus to the Erzgebirge, the Elbe and the Hanseatic cities. Cheaper…

How does inflation affect firms?

How does inflation affect firms?

Firms generally prefer inflation to be low and stable. If inflation rise above 3 or 4%, firms may see a rise in costs and uncertainty. In some circumstances, high inflation can negatively affect a firms profits. However, it is worth pointing out that deflation (falling prices) could also be very damaging for economic growth and firms. Some of the costs of inflation for firms Menu costs. These are the costs of changing price lists. If inflation is high, then firms will…