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Inflation And Unemployment In Jordanian Economy

Problems of inflation and unemployment are the most important problems that affect the growth of Jordanian economy. This paper I will present the concept of both inflation and unemployment in general as stated in previous studies and some economic theories that deal with these problems and their impact on GAP . According to Jordan economy profile in mind index, Cordon’s economy is among the smallest in the Middle East, with insufficient supplies of water, oil, and other natural resources, underlying the government’s heavy reliance on foreign assistance. Other economic challenges for the government include chronic high rates of poverty, unemployment, inflation, and a large budget deficit.

Since assuming the throne in 1999, King ABDULLAH has implemented significant economic reforms, such as opening the trade regime, propagating state-owned companies, and eliminating most fuel subsidies, which in the past few years have spurred economic growth by COPY RIGHT 0 2013 Institute of Interdisciplinary Business Research 317 attracting foreign investment and creating some Jobs. The global economic slowdown, however, has depressed Cordon’s GAP growth.

Export-oriented sectors such as manufacturing, mining, and the transport of re-exports have been hit the hardest. The Government approved two supplementary budgets in 2010, but Economics By ashlars additional revenue to

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cover excess spending. The budget deficit is likely to remain high, at 5-6% of GAP, and Amman likely will continue to depend heavily on foreign assistance to finance the deficit in 2011. Cordon’s financial sector has been relatively isolated from the international financial crisis because of its limited exposure to overseas capital markets.

Jordan is currently exploring nuclear power generation to forestall energy shortfalls According to wisped site stated that Cordon’s economy continues to struggle, weighed down by a record deficit of $billion this year. Inflation in Jordan has risen by 1. % to 6. 1% in December 2010, and unemployment and poverty have become rampant, estimated at 12% and 25% respectively. Yeses Mansard ,(2011):stated that, Jordan today stands at a crossroad, with four economic challenges -unemployment, poverty, inflation and corruption – that need to be addressed with ingenuous swiftness.

Failure to do so or a laggard, relaxed, attitude will not only destroy opportunities that may arise from the temporal doom of other economies in the region but also bring unwarranted consequences domestically, There are the four challenges that need to be tackled: – The inflation rate in Jordan in 010 was 5 per cent, up from -. 7 per cent in 2009 and down from 13. 9 per cent in 2008. According to the Food and Agriculture Organization, basic food prices will likely rise by 50 per cent this year, prompted in part by rising fuel prices and the falling US dollar. 18 Jordan, an importer of 86 per cent of its caloric intake and 96 per cent of its energy needs, will see a strong inflationary pressure this year. The poor spend over 40 per cent of income on food and fuel; hence, their spending power will be severely curtailed. Furthermore, inflation being imported, it is a wild card that can be rigged by regional unrest, and since it is due to factors outside domestic control, it cannot be dealt with through monetary policy instruments, including the exchange rate. – Unemployment, which reached a zenith of 19. Per cent in 2003, two years after Jordan received 300,000 repatriated Jordanians from the Gulf, with their savings of $1. 6 billion, is on the rise again. True, unemployment has fallen over the years to 12. 7 per cent in 2008; the trend since then has been upwards. In 2009, unemployment reached 12. 9 per cent, and 13. 1 per cent in 2010. The first quarter of 011 showed an increase over the first quarter of 2010; hence one can surmise that unemployment this year is trending up, which is not a happy sign. Furthermore, population, is 25. Per cent, the majority of the nation’s young will most likely be unhappy. – Poverty has not fallen over the years, but has increased in 2008 to 13. 3 per cent from 13 per cent in 2006, according to the 2008 Household Expenditure and Income Survey of the Department of Statistics. This occurred despite huge outlay by the government in 2008. Poverty will most likely be around 20 per cent. In other words, one of five people will be below the poverty line. The fourth challenge, is corruption. The common perception is that corruption has been on the rise since the last MIFF reform programmer ended in 2004.

Jordan, which was until then known for 319 low levels of corruption, became subject to rumors of large-scale corruption, which, if proven founded, could not only derail a costly reform process but also become the means and venue for unrest, since most likely people will blame corruption for usurping the fruits of the boom years (2004-2008), that were also lost with the bust (2009-until now). According to USSR site Cordon’s Consumer Price Average (inflation ate) for the first quarter of 2011 rose by 4. 4 % compared with the same period of 2010.

The main commodities groups which contributed to this rise were: Transport (10. 1%), Rents (5. 3%), Vegetables (13. 0%), Education (5. 9%), and Fuel and lightening 4. 4%. Meanwhile, the main commodities groups which witnessed a decline in their prices were: Communications (6. 8%), Cereals (3. 0%), Other expenditure (1. 4%) and Diary products and Eggs (0. 1%). What is the inflation. Inflation is an upward movement in the average level of prices. Its opposite is deflation, a downward movement in the average level of prices. The boundary between inflation ND deflation is price stability. Inflation is caused by a combination these factors: 1. 2. 3. The supply of money goes up. The supply of other goods goes down. Demand for money goes down. -Unemployment (or Joblessness), as defined by the International Labor Organization, occurs when people are without Jobs and they have actively sought work within the past four weeks The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force.

What is the relationship between inflation and unemployment? Here has been an inverse relation between rate of inflation and the rate of unemployment in an economy. The more the entrepreneur extends the employment opportunity the more he has to pay to that particular factor of production and the more payment to factor of production the increase in the cost of producing a unit will be observed and in order to maintain the profitability of the product the entrepreneur will inflate the price of that product.

A similar process will be observed through out the economy when the government intends to create Job. The price of products or services, where the workforce is installed, will increase once an increase in the rate of inflation will be visible through out the economy. It can be concluded from the aforesaid explanation that when a government intend to lower down the rate of unemployment it had to bear the increase rate of inflation in the national economy. What is the different between inflation and unemployment?

The number of people unemployed is the number of people in the country who are out of work and who are available for work at current market wage rates. This can easily be changed to a percentage by relating the number of people unemployed, to the total number of people in the labor force. Inflation is the general increase in prices over a 12 month period. This is measured by taking weighted averages of all consumer products (weighted on the frequency of purchase) and analyzing the trend of overall prices.

This is often called the Consumer Price Index (ICP) or 321 Harmonize Index of Consumer Prices (HICK). This shows how much, as a percentage, inflation lead to unemployment? The main idea is that while the economy is booming the unemployment is shrinking. People are needed to work/produce and employers are willing to pay more and more to get the most qualified workers, thus driving the wages up. They have nowhere to take the money from but to increase the price of their product/service. Thus driving the price level up (inflation). After reaching the highest point – the economy goes into crisis/recession.

The main problem is overproduction. Production shrinks. Producers cut costs: decrease output, layoff people. In this period the unemployment begins to grow. How does the cost of reducing inflation increase unemployment? Inflation means that the cost of “stuff(food, cars, housing, whatever) is going up. Its going up because there is strong demand for those things and people have plenty of money to buy them. If you (as a overspent or central bank) are concerned that things are getting too expensive, too fast then you need to reduce inflation.

You need to slow down the economy and reduce the ability of people to buy so many of those things. You can slow the economy by raising interest rates and making it harder to borrow money. Less money sloshing around = less stuff being bought. The downside of slowing the economy and reducing the ability of people to buy so much stuff is that there’s less work for all the people who make it. Lower inflation equals higher unemployment. Does Geiger inflation result in lower unemployment?

The main idea is that while booming the unemployment is shrinking. People are needed to work/produce and employers are willing to pay more and more to get the most qualified workers, thus driving the wages up. They have nowhere to take the money from but to increase the price of their product/service. Thus driving the price level up (inflation) Literature Review Lydia Afar© , Francis analyses the effect of various economic variables on changes in the income distribution for a sample of Spanish households over the period 1985-96. Hey use a semi-parametric bubble index-based procedure that estimates the level of individual income as a flexible function of individual characteristics and aggregate economic variables. This characterization of the income-generating process allows them to predict the level of individual incomes under different macroeconomic scenarios. Using contractual income distributions they conclude that the macroeconomic activity over the period has an important redistributive effect.

The high unemployment rate, which results distribution and explains a substantial proportion of the increase in income dispersion observed during the asses. The rise in the level of GAP and government expenditure, however, appears to shift the income distribution to the right, and reduces the individual cost of the economic crisis at the beginning of the asses. N©store Gentleman , Rub©n Hernandez-Muriel(2009), they used Gallup World Poll data to analyze the determinants of individual assessments of personal and country well-being . Hey found that both inflation and unemployment have a negative effect on individuals’ assessments 323 of personal and country past and present well-being. They also found a positive impact of inflation and unemployment on the optimism measures because both Inflation and unemployment worsen the evaluations of present well-being relative to the future. Joss© Bramble Manias, Guide Civilian ,(2009) They stated a special case of structural equation modeling in order to get a proxy of the size of the informal sector in Mexico.

Besides estimating the size of informality, the other aim of this study was to provide researchers with a reliable time series that can be used in further analysis of the phenomenon and its possible interactions with other important aspects of economic growth. From their results they can track the evolution f the Mexican informal sector during the past three decades. Their results indicate the stabilization of informality at levels around 30-40 percent of GAP since about the late sass’s, identifying as main potential causes taxation, low salaries and excessive regulation (peroxide by government consumption).

Nag El-Grady, FAA Kaki , Ammonia Bah El-Din ),stated that the rate of unemployed persons holding middle-education degrees ranked on top of the total unemployed persons, both in urban and rural areas, which can be attributed to the absent link between the level of education and the real needs of the labor market. The study showed that, the most important factors contributing to the rising volume of national unemployment include prevarication and inflation, and that increases in agricultural investments and agricultural domestic product resulted in raising the volume of agricultural unemployment.

The resulted data showed that, the increases in exchange rate and per capita share of GAP are the most important factors contributing to increasing GAP. 324 VOLVO 4, NO 10 Loyola Summing Outbound,(2010), she analyze the comparative impact of fixed and flexible exchange rate regimes on Nigerian economy. Data for this study are obtained n real gross domestic product, nominal exchange rate, purchasing power parity, consumer price index and inflation rate. The data covered the period 1970 to 2006.

This was done purposely to capture the two regimes of fixed exchange rate and flexible exchange rate. The study adopted multivariate autosuggestion VARY model technique. The results of co-integration analysis showed that there is one co- integrated vector among nominal exchange rate, inflation rate, consumer price index, purchasing power parity and economic growth. Granger causality test based on error correction models (ECMA) have indicated that nominal exchange rate, inflation rate, archiving power parity and consumer price index influenced the steady state level of GAP.

From this study, it was found out that both fixed and flexible exchange rate regimes have positive impact on the GAP. The two extreme exchange rate regimes influence output level of GAP positively. However, there is no significant difference between the two extreme exchange regimes and inflation, they both enhanced high inflation rate in the economy that is inflation is high in both regimes. Horst Feldman, (2010), According to his regression results, more economic freedom appears to reduce unemployment. The magnitude of the effect seems to be substantial, especially among young people.

Given the substantial costs of unemployment and the enormous number of Jobless people worldwide, particularly in the wake of the current financial and economic crisis, governments should consider increasing economic unemployment. Professor Sultan N. ABA Tatty,(2011), states and analysis the factors that affect the Jordanian total government expenditures. This study also employs a specific methodology to assess the freedom as a means of reducing 325 nature of the relationship between Jordanian public spending and its determinants.

A main result of this research is that population, unemployment and inflation rates are significantly related to the public expenditures In this study an equation based on co-integration tests was applied to model the relationship between government expenditure and its determinants. The determinants of public expenditures were classified in three groups. The first group, counter-cyclical policies include variables as inflation, unemployment and budget deficit The second group takes into account demographic factors, namely here population growth.

The last group is composed of political factors (political stability, interest groups and past real spending of the government). Or this study; a new approach was applied to test if the inflation and unemployment rates’ (as determinants) effect on the government expenditure was to continue; since only the unemployment and inflation rates were to be the variables to have a significant relation with the government expenditure growth in the above study; a correlation analysis was conducted to test the relation between these variables.

A complete data was available for the variables: unemployment rate (% of labor force), inflation (average consumer price change %) and general government total expenditure (% of GAP) for the period (19902010), the population of Jordan was also included in the analysis. Hail Tantalum,(2011); found that inflation and previous level of unemployment affect unemployment on different levels; real effective exchange rate does not. There is a negative relationship between inflation and unemployment but the relationship is a weak one because Sisters Paramus, if inflation rate increases 1 percent, the level of unemployment will decrease 0. 05 percent.

Thus, economic policies aimed at achieving and maintaining price stability don’t 326 cause a serious increase in unemployment. Long term unemployment is a characteristic feature of unemployment in Turkey. Ivan O. Kitty, (201 1), presented an empirical model explaining the evolution of inflation and unemployment in developed countries as driven by the change in the level of labor force. The model was previously tested on data from the biggest economies – the United States, Japan, the model and facilitate the procedure of the estimation of the model coefficients he has introduced and tested a new technique – the method of cumulative curves.

This method is a direct analog of the boundary element methods extensively used in engineering and science. Using Austria and the United States as examples, they have demonstrated that cumulative curves provide particular solutions of the model equations and guarantee the residual of the model to be a process. In other words, the difference between measured and predicted cumulative curves, both processes, is a stationary process. This is strong evidence in favor of the existence of a causal link between labor force and the pair inflation/unemployment.

Angus CB Kook,(2011), showed that youth unemployment situation was the worst for those aged 15 to 19. It loud be explained by the fact that those young school leavers who did not have/had limited working experiences had difficulty in searching for Jobs. During the research period, unemployment rate for those aged 15 to 19 had increased from 7. 0% in first quarter of 1982 to 24. 3% in second quarter of 2009. The result of LOS implicated that there is insufficient associations between POOH and youth unemployment rate during the research period.

It could be explained by the fact that most of the POOH are married and low educated middle-aged women. They acted as housewife and didn’t seek for a Job. For example during first quarter of 2010, 84. 0% of the one-way permit holders 327 (POOH) aged 15 and above were or had been married as most of the young and middle age female one-way permit holders (POOH) were wives of Hong Kong men. Other than the variations in certain quarterly statistics, the proportion of one-way permit holders (POOH) who were or had been married remained 80% and above throughout 2005 to first quarter of 2010. 3. 6% and 14. 4% of one way permit holders (POOH) aged 15 and above had attained secondary education and post-secondary education or above respectively. Eng Tweeze San, The Boon Hen;(2012), they used time rise model to analyze whether changes in spread correlate with macroeconomic variables in Malaysia. The economic performance needs to be determined for the extent to affect the differentials in interest rate. If this is the case, Malaysian government has some scope for influencing the interest rate by conducting proper macroeconomic policy.

This study has examined the relationship between bond markets and macroeconomic developments in Malaysia. This has been analyzed by statistics, significance and diagnostic checks of the variables of interest. When applied to interest rates differentials in Malaysia, the techniques are used to deliver ell specified relationships that have a clear economic interpretation. However, the estimated equations only support to the idea that spreads are significantly affected by macroeconomic factors with moderate weak evidence.

Money supply and current account are the factors that have strong relationship with maturity spread. Money supply influence bond yield differentials positively while current account influence it negatively. The other five variables, namely stock market return, gross domestic product, industrial production index, inflation rate and trade balance do not have impact on the maturity spread. This means that portfolio managers and investors may use the money supply 328 data and current account data in determining the investment decision.

Besides that, the authorities also can accomplish a proper monetary policy and control the government expenditure to influence the bond yield differentials. Data Description: The data which used in this study was obtained from the DOS; Department of Statistical in Jordan and from the global bank database, the yearly ratio of inflation, GAP, and unemployment from 2000 to 2010 was the data which we used. Unfortunately; we want to enlarge the data but according to unavailable of data our study was stopped at this ring of data.

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