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Macroeconomic Analysis: Unemployment and Inflation

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Macroeconomic Analysis: Unemployment and Inflation

Introduction

Unemployment refers to the state of people who are actively seeking employment but

unable to obtain or retain a job. It tends to rise during recessions and decline during economic

expansions. Inflation means a sustained rise in the aggregate price level across an entire

economy. Inflation can occur when aggregate demand grows faster than aggregate supply, often

due to lax fiscal or monetary policy. There is an intricate relationship between key economic

indicators like gross domestic product (GDP) growth, unemployment, and inflation.

When the economy is performing well, businesses generate higher revenues and profits,

facilitating new hiring and capital investment. Declining unemployment also leads to rising

wages and increased consumer purchasing power and spending, further fueling GDP growth.

However, very low unemployment rates can also spark excessive inflationary pressures. As

labor markets tighten, businesses compete for limited workers, driving up wage demands.

Businesses pass higher labor costs to consumers via price hikes. Too much stimulus during

expansions can thus ignite runaway inflation. Policymakers aim to strike a delicate balance -

promoting growth while keeping inflation moderate.

This paper examines two major unemployment issues in the United States - the

disproportionate rates among African Americans and Hispanics/Latinos. For decades, these

groups have faced jobless rates around twice as high as for white Americans. In 2022,

unemployment stood at 3.4% for whites, versus 5.6% for Hispanics and 6.2% for Blacks.

Multiple structural and social factors perpetuate these persistent disparities.

These unemployment gaps have ethical and economic implications. They represent

racial inequality, limiting economic opportunities and advancement for minorities. Bringing
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more African Americans and Hispanics into the workforce would also confer macroeconomic

benefits - their untapped talents hamper GDP growth, productivity, innovation and consumer

spending.

Several factors drive higher unemployment among these groups. Racial wealth gaps and

financial constraints make job loss or lack of work more detrimental for minorities.

Discrimination both explicit and implicit also reduces job options for nonwhites. Industry mix

and location factors like deindustrialization and suburbanization have hit African American job

prospects hard. Lower education levels among Hispanics curtail opportunities as well.

Resolving these racial unemployment divides could help mitigate associated social costs

like poverty, crime and deteriorating public health while empowering these growing

demographic groups to better contribute economically and socially. Doing so requires

confronting systemic underpinnings through public policy reforms around areas including

education, job training, infrastructure, employment discrimination enforcement, housing

equality, incarceration trends, and access to high-growth occupations.

By exploring the causes and consequences of disproportionate black and Hispanic

unemployment, this paper aims to better elucidate challenges and solutions around one of

America's most persistent economic equality gaps. Only by acknowledging and addressing

longstanding racial barriers in labor markets can the nation achieve truly inclusive growth.
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Data

GDP

Graph 1:Real Gross Domestic Product in United States from 2013 - 2023 extracted from

Bureau of Economic Analysis (2023)

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Inflation

Graph 2: U.S Inflation Rate from 2013-2023 extracted from macrotrends.net 2023

Unemployment

Graph 3: Unemployment rate in United States for people over 16 years of age in percentage

extracted from U.S BUREAU OF LABOR STATISTICS (2023)

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Unemployment Rate - Black or African American

Graph 4:Unemployment Rate - Black or African American for people over 16 years of age in

percentage extracted from U.S BUREAU OF LABOR STATISTICS (2023)

Unemployment Rate - Hispanic or Latino

Graph 5: Unemployment Rate - Hispanic or Latino for people over 16 years of age in

percentage extracted from U.S BUREAU OF LABOR STATISTICS (2023).

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Analysis

Over the past decade, unemployment and inflation rates have fluctuated, reflecting

economic expansions and downturns. This period of high unemployment depressed consumer

demand and presented challenges for the economy. Unemployment rate saw a progressive

decrease from 2013 until 2020 when covid 19 came and the rate of unemployment spiked to

optimum between march and April. However, this rate has decreased progressively hitting

minimum at 2023. On the other hand, inflation has fluctuated relatively until 2020 when

inflation spiked and has been on increase until now. This can be attributed from the beginning

of covid 19 meaning that the economy has not yet stabilized.

I have focused on the unemployment rate of African or African American and the

unemployment rate of Hispanic. In both cases the rate of unemployment has been decreasing

progressively from 2013 to 2020 when it spiked to its maximum and started decreasing again

progressively. It is worth noting however that the rate of unemployment has been higher for

African and black Americans which was 15% at while for the Hispanic was 10% at the same

year. This should be however understood because even with different rates, the treed is similar.

With covid 19 in 2020, the unemployment of Hispanic spiked surpassing that for Africans and

Africans Americans hitting 19% against 17%. In 2023, the unemployment rate for the African

Americans remains higher at 6% while for Hispanic it remains at 5%. For African Americans

the lowest unemployment rates has been experienced at 2023 at 4% while for Hispanic the

lowest unemployment rat was experienced at mid-2022 hitting 3%.

Reflection and Critical Thinking

As the analysis shows, between 2013 and early 2020, unemployment rates were on a

steady downward trajectory for the overall workforce as well as for African Americans and
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Hispanics more specifically. This reflected a period of sustained economic expansion coming

out of the Great Recession. Lower unemployment rates supported greater consumer spending

power, fueling aggregate demand and GDP growth during this period.

However, the analysis points out that African American and Hispanic unemployment

has remained persistently higher than national averages even as conditions improved. This

indicates systemic disadvantages still facing minority groups in accessing equitable job

opportunities and wages. Perpetuation of these racial economic inequalities contributes to

weaker aggregate consumer demand than would be possible with more broadly shared wage

and employment gains.

The Covid-19 pandemic in early 2020 then triggered a spike in unemployment across all

groups, as businesses shut down and laid off workers. This caused consumer spending and GDP

growth to plummet, meeting the technical definition of a recession from March-April 2020.

Unemployment peaked at 19% for Hispanics and 17% for African Americans in 2020, reducing

their capacities as consumers and compounding economic declines.

As the economy has recovered, unemployment rates have come back down to pre-

pandemic levels by 2023. But the analysis indicates even at just 5-6%, unemployment for

African Americans remains higher than the 3-4% national average. Ongoing racial economic

inequality continues hampering aggregate consumer demand and spending. It also limits the

productivity capacity of the economy by sidelining talented workers based on systemic

disadvantages rather than merit.

Sustained progress toward racial equity and broadly shared prosperity in wages and jobs

will help strengthen aggregate demand across the whole business cycle. More equitable access

to education, career opportunities, and wages for all Americans regardless of race or ethnicity
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supports greater macroeconomic resilience and mitigates risks of steeper downturns during

inevitable future recessions.

Solution

The solutions addressing potential monetary and fiscal policy responses as well as my

own proposed solutions to the macroeconomic issues are;

Monetary Policy Response

The Federal Reserve could pursue more accommodative monetary policy when

unemployment spikes, especially among disadvantaged groups. By cutting interest rates and

employing quantitative easing (QE) programs, the Fed can lower borrowing costs and stimulate

demand to boost job growth. However, such accommodation also risks further inflating prices.

The Fed must balance maximum sustainable employment goals with inflation targets.

Fiscal Policy Response

Congress could pass stimulus packages like increased infrastructure spending or

extended unemployment benefits to directly create public sector jobs and income support

during times of high jobless rates. Fiscal policy can be targeted to aid minority communities

and low-income households bearing the brunt of unemployment. Funding this sustainably

would require politically-challenging tax revenue measures.

My Proposed Solutions

I would pursue an "inclusive growth" strategy making racial equity and broad-based

wage gains an explicit priority across fiscal, monetary, and structural policies. This would

include accommodative Fed policy focused on achieving equitable full employment without

overshooting inflation. I would fund targeted stimulus like jobs programs and unemployment

support to aid vulnerable households first. I would also increase investment in education, job
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training programs and infrastructure to low-income, minority areas to build economic capacity.

On the structural side, I would address inequities within labor laws, financial regulations,

zoning policies and voting rights that systemically disadvantage communities of color. Pursuing

sustainable growth that widely shares benefits will increase macroeconomic resilience by

unleashing the productivity and demand potential of all Americans.

In summary, an inclusive growth agenda combining short-term stabilization policy for

vulnerable groups and long-term structural reforms to address root inequities would strengthen

both social and macroeconomic outcomes. This can mitigate risks of instability during future

downturns while building capacity to enhance innovation and productivity over the long run.

Reference List
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United States Department of Labor. (2023, November 29). U.S Labor of Statistics. Labor Force

Statistics from the Current Population Survey

https://data.bls.gov/pdq/SurveyOutputServlet

Macrotrends.net. (2023). U.S. Inflation Rate 1960-2023.

https://www.macrotrends.net/countries/USA/united-states/inflation-rate-cpi

Bea interactive Data Application. (2023). National Data. National Income and Product

Accounts. https://apps.bea.gov/iTable/?

reqid=19&step=2&isuri=1&categories=survey&_gl=1*10ywr0h*_ga*NDMyNzEyMzc

yLjE3MDEyNjIxMDM.*_ga_J4698JNNFT*MTcwMTI2MjEwMi4xLjEuMTcwMTI2

MjQyMS4wLjAuMA..#eyJhcHBpZCI6MTksInN0ZXBzIjpbMSwyLDMsM10sImRhd

GEiOltbImNhdGVnb3JpZXMiLCJTdXJ2ZXkiXSxbIk5JUEFfVGFibGVfTGlzdCIsIjEi

XSxbIkZpcnN0X1llYXIiLCIyMDEzIl0sWyJMYXN0X1llYXIiLCIyMDIzIl0sWyJTY2

FsZSIsIjAiXSxbIlNlcmllcyIsIkEiXV19