Philips curves
Chapter one Introduction or Statement of the Problem
1.1 Introduction and background
Labor market is affected by each and every change in the economy. Rapid growth creates employment opportunities and a slowdown reduces the job opportunities in an economy. A slow down in economy affects the job market because overall reduction in demand and supply reduces the production and that is what forces the companies to layoff. Due to the shrink in job market a person will be willing to accept any job at even a minimum wage rate. This happens because the slowdown in economy causes the prices to fall and low wages can still serve the purpose. Low wages help companies in cost cuts which eventually help in increasing employment because company then can hire more employees on low wages.
Not all the savings go to the investment market because there are not many people who are willing to take risks on their investments. Investment carries a huge financial risk which is not easy to be held by people who are not risk-oriented. There is a concept which says that increase in saving would not necessarily lead to increase in investment. This concept makes it clear that not all the savings are converted into investments. The notion explained by classical economists is true that the investment would eventually equal savings because the interest amount will fluctuate and it will actually get equal to amount that is not invested in the market. More specifically, it is the interest on investment that keeps on multiplying and serves as a saving.
During the period of great depression most of the savings were wiped out in the stock market crash. The other thing that wiped out the savings was the failing of banks due to downturn of the economy. The saving accounts diminished as nothing could cure the problem of banking industry. Savings were also affected by the decline in wages and increasing unemployment during the great depression. Obviously no one could survive such a slowdown in which millions of accounts in thousands of banks were removed. Thousands of businesses failed and there was no one to save.
When the economy slows down, a producer has no option but to reduce prices because of the reduction in demand. It is an overall effect of demand and supply which creates a deflationary impact in the economy. When the cost of the resources decreases then there is no harm to reduce the prices. In economic slowdown the labor cost decreases due to low-wage rates and cost of factors of production also decreases because of the deflation. Businesses may also lower the prices just to stimulate the economic process through increase in output. As an economic rule lower price will increase the demand which will eventually force the company to increase the production. Another factor due to which companies lower the price is competition and competition increases in the situation where economy is facing a slowdown because every company will look out for producing and selling more than its competitor and that will lead to price cuts.
1.2 Statement of the Problem
The effect of unemployment on inflation has also been insignificant in the United Kingdom. The current credit crisis affected growth rate to have only 1.5 in 2008, which was a reduction to 1 in 2009 in the United Kingdom. Consumer spending also reduces to 0.2 and a significant drop in the investment level. The price of housing also shows a declining trend. The mortgage approval falls by 70. Factory production dropped by 0.5, 12 out of 13 categories of factory production fell. (2008 economic crisis in Europe .November 12, 2008)
This financial crisis expects to cost job losses in the UK. In UK unemployment increases to 7.8, this is twice than the pre crisis rate. Average hours worked per week also reduced. Uncertainty is the main cause which reducing consumers confidence and at the same times the level of spending across the world.
In examining the above research question, the research objectives below were formulated
To find out how unemployment is affected current credit crunch
To find out effects of inflation on Philips curves
To find out what they think about the national minimum wage
To find out how many are paid national minimum wage
Chapter two Review of the Literature and Research Questions
2.1Inflation
When aggregate demand exceeds aggregate output at full employment there exists demand- pull inflation. Therefore excess demand causes inflationary pressure. The inflation may then give rise to wage claims which increase firms costs, but the inflation is actually caused by excess demand.
The excess demand itself can originate in either the real or monetary sectors of the economy- that is, can be caused by autonomous increases in government spending, investment, consumption or exports in the real sector or by an autonomous rise in the money supply or fall in the demand for monetary sector. This has been illustrated below
Demand shifts the AD curve to the right. This increases the equilibrium level of real income form OY1 to 0Y2 reducing the rate of unemployment and raises the equilibrium price level from 0P1 to 0 P2. Therefore at full employment AS curve is steeper and has effect on aggregate demand on the price level thus the rate of unemployment.
The government will through policy measures try to mitigate effects of this inflation this is because the government has some control over the money supply and can finance its own spending by raising taxes, borrowing or by printing money.
When rising money wages or other production costs are passed on to the consumer in the round of wage claims so that an inflationary spiral develops it is called Cost-push inflation. Rising costs shift the AS curve upwards, as shown in the graphs above. This reduces the equilibrium level of real income from 0Y1 to 0Y2 thus creating some unemployment and raises the price level from 0P1 to 0P2.
Although cost push inflation can exist when there is less than full employment, it is reasonable to suppose that wage claims are more likely to be successful when the economy is at full employment because then employers will be competing with each other for the existing work-force.
The greater the inflationary pressure, the greater the rate of unemployment, the less the inflationary pressure. Keynes argued that with unemployed resources, money wages would be more or less constant, but at low levels of unemployment, money wages would start to rise as bottlenecks occurred in the labor market. As full employment was reached, money wages would rise rapidly as employers competed vigorously with each other for the existing workers. All this suggests that there maybe a trade-off between the rate of unemployment (U) and the rate of money wage inflation (W).
The relationship created here is called Philip curves. The Philips curve appears to have been a remarkably stable relationship would have extremely important policy implications for a government. It would mean that the control of inflation and the maintenance of full employment were conflicting objects. The trade off relationship between unemployment and inflation influences policy-making in many countries.
2.2MONETARY THEORY OF INFLATION
Monetarists argue that sustained and serve inflation can be produced only by excessive increase in the money supply. Indeed, Friedman has said that inflation is always and everywhere a monetary phenomenon. This view is backed up by an impressive amount of empirical evidence showing a correlation between increases in the money supply and consequent increases in the price level.
Less extreme forms of the view that excess demand is the main cause of inflation tend to place more emphasis on fiscal, rather than monetary, factors as the source of the excess demand- that is, government overspending, however financed, is seen as the main cause of inflationary pressure by some economists.
Friedman argues that an inverse relationship may exist between the rate of wage inflation and the rate of unemployment in the short run, but there is no such relationship in the long run. Instead, the long-run Phillips curve is vertical at the natural rate of unemployment. He claims that there must be a different short-run curve for every different expected rate of inflation the higher the expected rate of inflation, the further up and to the right will be the relevant short run Phillips curve.
Starting at point Un on the graph, the natural rate of unemployment prevails and there is zero wage and price inflation. The expected rate of inflation is also zero so that expectations are being realized and there is no pressure being exerted to change either prices or the level of employment. Suppose now that the government tries to reduce unemployment by following some expansionary policy. As aggregate demand increases, firms will attempt to increase output and, to attract the required labor, money wages will rise by . Although this rise in money wages will soon be followed by a rise in prices, workers will at first interpret the rise in money wages as a 4 rise in real wages- that is to say, in the short run, the workers suffer from money illusion. The reducing unemployed workers respond to this apparent increase in real wages by reducing their search periods.
This, then, is the short-run trade off 4 inflation and is the penalty being paid for the reduction in unemployment. Friedman argued, however, that in the long run all money illusion will disappear as the workers come to realize the price inflation is depriving them of their increased real income. Search periods will be lengthened again and some workers will withdraw their labor. At the same time, employers who initially demand more labor in response to the increased prices ( which led them to believe that real wages were falling) eventually come to realize that real wages were falling) eventually come to realize that real wages have not fallen at all and so revise their employment plans downwards. As some workers withdraw their labor and employers reduce their demand for labor, unemployment rises back to the natural rate. But now there is an actual and expected rate of inflation 4. If the government should again attempt to reduce the rate of unemployment below Un, the economy would this time move along the short-run Phillips curve, B, which is relevant when the expected rate of inflation ( Pe) is 4.
It is the complete absence of money illusion in the long run which ensures that any trade- off between unemployment and inflation can only be temporary so that long-run Phillips curve is vertical at the natural rate of unemployment. This means, of course, that any rate of inflation is possible at the natural rate of unemployment.
The vertical Phillips curve is of little use to policy-makers except as a warning that continued attempts to reduce unemployment below its natural rate can only lead to increasing inflation.
This theory augmented Phillips curve allows for the existence of a short-run trade off between unemployment and inflation, but not for a long-run trade off. The reason for this is that inflationary expectations are revised according to what has happened to inflation in the past. So when the actual rate of inflation rises to 4 in graph above, people continue to expect zero inflation for a while and only in the long run do they revise their expectations upwards towards 4. This assumption concerning the formation of expectations is called the adaptive expectations hypothesis.
Although a rise in the price level may have its origin in cost increases, it can only be sustained if it accompanied by growth in the money supply. Is the money supply is kept unchanged this position can only be temporary. The higher unemployment will eventually lead to fall in wages and so cause the short-run AS curve to shift back to SAS.
If follows that they are only likely to be effective against inflation caused by excess demand. A cut in government spending, an increase in taxation or some combination of the two should have the same effect. As we have seen .Keynesians place emphasis on fiscal policy as a means of controlling aggregate demand. Monetarists attach a greater degree of importance to the influence of the money supply. Monetarists do not favor the use of monetary policy for short- term stabilization purposes because of the uncertain length of the time-lags involved, and the difficulties involved in making accurate forecasts.
If Friedman is right and the long-run Philips curve is vertical, so that a high rate of inflation can exist at the natural rate of unemployment sustained by inflationary expectations, then the appropriate action to bring down the rate of inflation will be to keep a tight rein on growth of the money supply. This will increase the rate of unemployment above its natural rate and reduce the actual rate of inflation below the expected rate. Expectations will then be revised downwards and eventually the natural rate of unemployment can be restored at a lower rate of inflation.
2.3UNEMPLOYMENT
Unemployment is categorized into four types frictional, structural, seasonal and cyclical unemployment, which generally reflect the causes of each type of unemployment. Frictional unemployment refers to the gap between an individuals employment and job-seeking. It is also called transition unemployment or search unemployment since it is only temporary and usually due to the workers own decision. That is, individuals normally find better positions thus they normally apply for more jobs due to the aim of finding the best choice. Moreover, at any given period, even those with marketable skills can be fired from their current job or they may decide to quit their job to look for a new one. The job-seeking process takes time and thus at such period, the individual is unemployed for the mean time. Frictional unemployment is also explained by the employers discretion not to hire everyone that applied for a vacant position. Employers also take their time in deciding who among the applicants would be hired. This is because employer would find who is best fitting for the position. With this, frictional unemployment could be considered voluntary since it requires time for the job-seekers to find the job openings that matches his skills and knowledge. Frictional unemployment is a normal and transient and is caused by the time required for qualified workers to search for jobs or change jobs. When a person decides to leave his current position and momentarily stay unemployed because he is seeking for a better job, this individual could be considered to be in the frictional unemployment labor force. Frictional employment is short-term and voluntary hence it does not really pose a threat to the labor market and to the economy (Macroeconomic Unemployment Explained). Despite the fact that frictional unemployment is not of great concern, it is still necessary to reduce the frictionally unemployed. This can be done by wide dissemination of information about new jobs such as posting vacancies in the internet where the frictionally unemployed may find the jobs they want more quickly (Tucker 161).
While frictional unemployment is only transient, the structural type of unemployment can be long-term and permanent. Structural unemployment refers to the state wherein there is huge number of unemployed individuals because they do not qualify for any job openings in the labor market. Generally, the labor market sets off standard for each job opening and thus it would not be a guarantee for job-seekers to be immediately employed. Job-seekers must be competent and should meet the criteria required for a certain position for them to get hired. One of the concerns of structural unemployment is the training or retraining as well as education needed by the structurally unemployed workers in order to match with the job vacancies.
Three types of structural employment results from the changes in the economy. First, unemployment may result from the lack of skills or education required by the available jobs. This type of structural unemployment affects teenagers and the minorities since they tend to have little experience or less skilled. Other workers such as loggers can also be affected because of environmental concerns. Example when cutting of trees are restricted, loggers would be losing their jobs hence there is a need for retraining these loggers so that they would be able to find a new job. Second, shift in demand can cause structural unemployment. This happens when for example demand for Porsche increase while demand for Chevrolet Corvettes decrease. This shift in supply can lead to structural unemployment of the auto workers In the United States. In order to regain employment, these workers must retrain so that they could find jobs in other industries. Third, structural unemployment occurs because of certain changes in the labor market such as technological advancement. For example, in order to save from textile exports, the textile industry may opt to install modern machinery which would eventually replace the textile workers (Tucker 161).
Furthermore, there are also cases wherein a qualified job-seeker would decline a certain position due to the geographical demand. The occurrence of massive mismatch of jobs and skills of job-seekers as well as the concern about geographical location of the job characterize structural unemployment. (Macroeconomic Unemployment Explained). Compared to frictional unemployment, structural employment is not voluntary and individuals may stay unemployed for an extended period. It would take time for job-seekers to actually develop the skills currently demanded in the labor market while at the same time they may consider looking for job in other places. The whole process takes long causing pain and frustrations to the job-seekers. With this, the society would be ill-affected (Macroeconomic Unemployment Explained). In order to curb the number of structurally employed, it is necessary to create programs designed to train the structurally unemployed workers (Tucker 162).
Seasonal unemployment is driven by the demands of certain goods and services which may result to sudden upsurge of the demand for some positions. These positions however are only seasonal and thus the hired individuals would be left unemployed once the season ends and the demand for the goods and services subsides. For example, during Christmas, workload in postal services increases thus postal workers is highly demanded. However, as Christmas season ends, so does the demands for postal services thereby resulting to unemployment (Macroeconomic Unemployment Explained).
Another type of unemployment is cyclical unemployment results from the cyclical changes in businesses. It is characterized by fluctuation in unemployment following changes in the business cycles. During recession for example, businesses typically reduce production because of low demands. With the decline in production, business may not be hiring new applicants until the economic situation fares better (Macroeconomic Unemployment Explained). The labor force of a country is affected by the changes in the output of goods and services. When there is a high demand for production of certain goods and services, there would be high demand in the labor force. Thus when a business decides to produce smaller quantity of a certain product or service, then it could be translated to lower demand for workers of such positions. Other than that, businesses may also lay off workers thereby contributing to the increase in the pool of unemployed individuals. Unemployment is usually higher during recessions when demands for goods and services are smaller. The unemployment in the United States for example is slightly higher during the periods of recession but it was also observed that unemployment gradually decline when the GDP starts to expand (Mankiw 2008).
2.3.0Factors Affecting Unemployment
The impact of unemployment on labor market demographically differs. Race, age and educational attainment are all factors influencing unemployment in certain demographic areas. It should be noted that unemployment rate in males and females is almost equal. The differences only show when considering the three factors. For example, there is higher unemployment rate for African-Americans compared to the Hispanics and their white counterparts. New entrants in the workforce are also subjected to the qualification screening and since their experiences may not be sufficient, they tend to become rejected from a certain job openings. This explains why age is a factor in unemployment. Age and age combined on the other hand is a strong factor in unemployment. It was revealed through research that unemployment rate is higher among African-American teenagers. In fact, the unemployment rate among African-American teenagers is almost twice the rate for white teenagers. The trend could be explained by discrimination wherein whites are preferred for certain positions over African-Americans primary due to qualification. Aside from that, African-Americans are more concentrated in inner-city where there are fewer opportunities for less skilled individuals (Tucker 166).
Education on the other hand proves important in battling against unemployment. In the 2007 unemployment rate, it was revealed that individuals with college education are more likely to be hired and less likely to be laid-off (Tucker 167). The differences in educational attainment across racial groups along with discrimination explain why blacks have lower chances of getting hired. Blacks have fewer years if education compared to whites. They also have significantly lower years of experience. Since education and years of experience are both considered by employers, blacks tend to become cyclically unemployed. The cyclical unemployment of blacks is even more pronounced during recessions. It was observed that in the 1981-1982 recession, there was 5 percent increase in the unemployment rate for blacks whereas there was less than 3 percent increases in whites (Zavodny et al.).
2.3.0Consequences of Unemployment
Unemployment could be burdensome to the economy because it incurs potential losses in outputs. But the monetary loss is not the only consequence of unemployment. Nonmonetary consequence of unemployment could be more costly. Some people may endure unemployment because they have enough savings but there are people who become frustrated and dwell in despair. This primarily brought about by issues of self-worth in which an unemployed person may think of himself less valuable in the society for being unable to support a family. According to research, unemployment is related to suicides, crime, mental illness and other problems while severe unemployment results to despair, breakups in families as well as political unrest (Tucker 165).
The workers can be considered fuel of the economy since they help in the production of goods and services. But there are situations wherein workers may lose their jobs and become unemployed. Various factors can result to unemployment. Seasonal demands for goods and services for example mean seasonal demand for workers. Although, there are cases wherein it may be the individuals decision not to look for a job, there are also those who cannot find one despite persistence in looking. It shows however that the highly skilled and educated individuals are more marketable and thus they are more readily hired. It is therefore important to place importance on education as well as training so that unemployment and its consequences would be avoided.
2.3.1Effects of Unemployment
Unemployment can impact the government, society and the individual. It becomes difficult to demarcate the effected under different headings because they are all intertwined within one another. An effort has been made in the following paragraphs to keep the information as non-redundant as possible.
On the Government
One of the effects of large number of people losing their stable incomes is that the Gross Domestic Product (GDP) goes down and the amount of taxes that are paid to the Government becomes less. The result of this is fiscal instabilities and constraints on the spending budgets. This in turn results in the Government borrowing resources from other countries, increased national debt, more fiscal difficulties and so on in a vicious cycle. (Unemployment Encyclopedia, 2009)
On the society
Whether on the society or the economy as a whole, the major impact that unemployment has is to lessen productive labor i.e. the number of people who are able to contribute to the betterment of the economy and the government (Jones, 2009). Another effect is under-employment. The individuals who are holding jobs during an unemployment wave or those who have been newly unemployed may settle into low paying jobs for which they may be over-qualified. This again causes lowered productivity. (Unemployment Encyclopedia, 2009)
On the individual
The most severe and immediate effects of unemployment is seen in the affected individual. The phrase work is worship becomes meaningful especially when a person is out of it. This is because, a job is not just a source of income and stability it also is a platform that exposes a persons creativity, his ability, dedication and perseverance. A sudden loss of such an outlet can lead to drastic effects starting from ill-health to psychological maladies and suicidal notions (Linn et al., 1985).
A large number of papers have been published in the past and the recent years analyzing the different aspects by which a persons health, both physical and mental is affected by unemployment. In fact Janlert (1997), reviewing the effects that losing a job has on an individuals health (increased smoking, alcohol consumption etc.) called this a disease. Summarily, these papers stress on the fact that the loss of a job leads to elevated levels of stress, anxiety and depression and this lead the unemployed to resort to smoking, drug abuse and alcoholism. The following paragraphs deal with the physical and psychological effects of unemployment in more detail.
2.3.2Physical effects of Unemployment
The Economic Deprivation model has been used to explain the relationship between unemployment and health. The explanation is straight-forward. Without a job, there is a lower amount of cash inflow and this result in lesser resources and increased constraints to buy the necessities of life like food and clothes. This results in ill health through poor sanitation and bad food. Studies conducted during high tension situations like during the Great Depression and during war times reinforce this model. (Janlert Hammarstrom, 2009).
The relationship between smoking and unemployed is well documented. It has been found that unemployed persons smoke more cigarettes than those who are employed. The reason for this is that unemployed people use smoking as a means of short-term relief from the stress and anxiety associated with the loss of a job. The relationship between smoking and unemployment seems to be a two-way street people who are jobless smoke more and if a person is a heavy smoker, he is probably unemployed. Increased smoking has its own ill effects on health including lung cancers.
Alcohol consumption was also found to increase, especially among the unemployed men (Janlert Hammarstrom, 1992). Other physical maladies like headaches, weight gain and loss, gastric discomfort and problems, allergies, inflammatory reactions etc. were also found in people who were unemployed for more than 20 weeks. These effects were present in men several years following unemployment as well (Hammarstron Janlert, 2002). A direct effect of increased stress insomnia, is also seen among the long-term unemployed (Janlert Hammarstrom, 2009).
2.3.4Psychological effects of Unemployment
This is the most researched side of the effects of unemployment. One of the important initial effects of job loss is elevated stress levels. When Linn et al., (1985) compared the stress levels of a group of men who had been either fired, dismissed or laid off with a group who still had their jobs, it was found that on a stress scale of 0 9 where 9 shows extreme stress levels and 0 none, the unemployed men showed levels averaging about 6.66. It is believed that this elevation in stress is the forerunner of all the other deleterious changes that are seen in these people. The stress model popularized by Hans Selye (Janlert Hammarstrom, 2009) links stress borne out of the combination of loss of employment and genetic predisposition to ill health.
Recently, Kaplan et al., (2008) reinforced the direct relationship between the stable income and psychological well being. Those people who had a high income and prospects of increments were happier, optimistic with a greater purpose in life, self respect and more creative compared to those otherwise. Unemployment has been found to result in social isolation (lack of friends, for example), depression and mental instabilities.
The most serious effect of unemployment is increased mortality (increased incidents of suicides and violence). Mortality has been shown to be significantly greater among the unemployed than among the employed (Morris et al., 1994). Martikainen (nd.) suggests that unemployment may either have a direct causal effect or it could be a selective factor for mortality. In the former case, the loss of a job and the deprivation of basic necessities and healthcare can result in increased psychological stress and mortality. Conversely, people who have perpetual ill health are more likely to be unemployed than other healthy people.
Among the factors that result in increased mortality, the one that contributes the most is violence and accidents. This is followed by death due to respiratory syndromes and then by alcohol associated maladies. Other factors include cardiac instabilities and other diseases (Martikeinen, nd.).
2.3.5Social support and Unemployment
In many studies, it has been found that social support relieves some of the adverse effects of unemployment. It has also been seen that the amount of social support for the unemployed in cities is much lower than that for those in rural areas (Linn et al., 1985). Social support has been found to have a strong positive effect on the mental health of the individual (Roberts et al., 1997).
2.3.6Unemployment effects and Gender
In all the aforementioned studies, the effect of unemployment has been found to be more significant among males than among females. The reason for this is due to the different roles they play in the society. Although a large number of women work these days, the title of home-maker has remained exclusively feminine. Thus, when a woman loses a job, she is quite unaffected unless the financial conditions are absolutely desperate. The man, on the other hand is expected to work. That is the social norm. So, while the woman just feels the economic pinch, a man feels completely useless without a job. From the psychological standpoint, the lack of a job may make a women feel that her talents are being unutilized and her flow of ideas and creativity may slacken, but she would not lose her image of herself as she always has something else to do. This is not the case in a man. The loss of a stable income job can be disastrous to the male as his ego gets a severe jar and he has a lot of time in his hands (time that he never had until then). As an idle mind is the devils workshop, so is the lack of employment a platform for unproductive and often criminal thoughts and actions. (Artazcoz et al., 2001)
Chapter three Research methodology
There are two types of information required for this study Primary and secondary information. Literature review was mainly constructed using secondary information gathered from relevant journal articles which had been accessed via the universitys educational resources. On the other hand primary information was gathered and the tools to collect data were categorized into questionnaires for the quantitative analysis, and detailed interviews and focus groups for the qualitative analysis.
The research with relevance to the above stated aspects is conducted by reviewing secondary data which is readily available. The various sources of secondary data that have been reviewed as part of this research are a large number of international journals, books and obviously the World Wide Web. Research is the process of finding a solution to a problem or a question through the use of scientific tools and techniques ((ICMR), 2004). In a nutshell, research is a methodical and purposeful study conducted to obtain solutions for specific problems. Research is a process of collection of data in an organized manner with subsequent recording and analyzing of such data that will help in an effective decision making process.
3.1 Philosophy of Research
Research is generally assumed to be a complicated task which is actually not if the various parts or phases of the research are clearly understood. A research project is basically a well-structured process which has a beginning, intermediate part and the end. In todays world, research is alternatively being termed as logical reasoning (Trochim, 2006). Logical method of research consists of two different methods namely, the inductive and deductive methods (Trochim, 2006). For any research to be effective and meaningful, lot of assumptions and philosophy are two aspects which are linked. Another important aspect that is worth discussing in this context is the quality of research.
3.2Data Collection
Data is a collection of related observations, facts or figures. A collection of data is called a data set, and each observation a data point. As already discussed, data collection can be done either by collecting first hand information i.e. primary research or from already existing records i.e. secondary sources. Primary data is collected using research instruments like questionnaires, mailers, telephonic interviews etc. Secondary data is collected from already available sources such as published papers, journals, magazines, reports, company literature etc.
Secondary sources have been relied upon. The reason is that secondary data when compared to primary data is easy to collect and is less time consuming. As information in the secondary sources is readily available, it can be compiled quickly. Also, traditional information and past history with respect to the exchange rate mechanisms and other similar relevant data with respect to all three economies under discussion is something difficult to collect or make available by conducting primary research and hence the secondary sources of research have been used to produce this Dissertation. This benefit was proven, because the data editing process was quick and efficient, hence saving a lot of valuable time.
3.3 Analysis of Results
Once the information is collected, it is edited and coded. The data after coding is tabulated and evaluated using statistical applications. Before starting to analyze the data collected, it is important to review the method of data collection quantitative or qualitative. If the data collected is quantitative in nature, then statistical methods like mean, variance, standard deviation and frequency etc. are calculated. Quantitative methods like regression analysis and correlation analysis help in the prediction of the unknown value of a particular variable form the known variables ((ICMR, 2004).
Frequency in the above method is nothing but the number of times the same response is received.
Mean is the average of a series or sequence of the responses.
Variance is calculated using the sum of the squared distances between the mean and each observation divided by the total number of elements in the distribution. While calculating the variance the deviations are squared to make them positive.
Standard deviation is the square root of the average of the squared distances of the observations from the mean. The standard deviation is expressed in same units as those used in the data set.
Correlation is a statistical tool that helps to measure and analyze the degree or extent to which two or more variables fluctuate with reference to one another. Thus, correlation denotes the inter-dependence among the variables. For correlation two phenomena, t is essential that the two phenomena should have a cause-effect relationship and if such relationship does not exist, then the two phenomena cannot be correlated ((ICMR), 2004).
The term regression literally means stepping back towards the average. The technique of regression analysis is used to determine the statistical relationship between two or more variables and to make prediction of one variable on the basis of the others ((ICMR), 2004).
Simply put, regression is a mathematical measure of the average relationship between two or more variables in terms of original units of data. This analysis provides estimates of values of the regressed variables from the values of regressor variables. Estimates of regressed variable i.e. the dependant variable can be made using the regression line, which describes the relationship existing between two variables.
If the data collected is qualitative in nature, then it is analyzed by reading the data and sorting it out. The data collected through qualitative is to be organized properly and then it has to be categorized and arranged. A method called Content Analysis is used for Qualitative analysis of data. According to content analysis, the data collected is carefully read first. Then the main themes and topics of the information or the data are identified, coded and categorized.
3.4 Limitations of the Study
The topic is of such a nature that it does impose some limitations on the findings. Following were some constraints, which might limit research project into boundaries
One of the major limitations is of generalizabilty. The research might not be able to generalize on all the parts of the world.
Another limitation is the limited time frame for its completion. So sample size, in spite of being large enough it is still relatively limited and would not be increased.
Another important limitation is that it is just a cross-sectional study. If the study was conducted on longitudinal basis, the results would be different since change is the hallmark of todays world.
Cost constraints are relevant however, these were manageable, since the research was conducted within the University.
Chapter IV. Results and Discussion
Inflation rate in UK has increased from 1.9 to 2.9 in the year 2005 to 2009 over the same period unemployment rate change from 4.7 to 7.8. But the change has not been smooth it has been fluctuating from time to time e.g. in the first quarter of the year 2005, it was 1.9 percent. It dropped to 1.8 in the same quarter of the following year before going up to 3.1 in the year 2007. Now, the graph below shows how unemployment has been affected by the inflationary rate in the United Kingdom (Bank of England 2009). We are using consumer price index as a measure of inflationary tendencies
EMBED Excel.Chart.8 s
From the graph it can be noted that there has been a growth in consumer price index in the United Kingdom but one thing should be mentioned that the growth has been fluctuating up and down but with an upward trend. In the year 2005, the inflationary rate was 1.9 it went up to 2 then up to 2.5 then down to 1.9. This is repeated in the year 2006 however in the year 2005 it moved up in the second and third quarter before coming down to the rate that was prevailing during the first quarter. This trend which ahs been witnessed affects the consumption and the purchasing power of the people. The consumer price index is used to measure the purchasing power of the citizens. The fluctuations in the consumer price index, is reflected in the changes in the unemployment rate. The consumer price index is a determination of the consumption rates of the economy. The times when the price index changes upwards the unemployment rate responds to the same direct.
An increase in real income in any country will mean an increase in demand for goods and services. Thus the unemployment will reduce as people will invest more in production. From the data, it can be noted that rising real income in UK will tend to depreciate a sterling pound. However, all other things may not be equal one needs to explore why income might rise in the UK. Over the long run, real income rises when a country becomes more productive the country produces more goods for given supplies of inputs and adds to its stock of productive capital, both human and physical capital.