Inflation and Unemployment which one is more harmful for Bangladesh ?

How to solve the problems of unemployment and inflation ?

Unemployment :
Unemployment is defined as a situation where someone of working age is not able to get a job but would like to be in full time employment. An economic condition marked by the fact that individuals actively seeking jobs remain unhired. Unemployment is expressed as a percentage of the total available work force. The level of unemployment varies with economic conditions and other circumstances.

Inflation:
Inflation is on a rising trend and unemployment rate is also increasing in recent years which imply that the strategies and policies of the government to achieve 8 percent GDP growth rate by FY 201415 need re-working to address these problems for bringing the economy on track to achieve the target. Unemployment is a great concern in Bangladesh. Every year hundreds of thousands student are coming out from college and university. Only a tiny fraction of total jobless is managed by different government offices and private organization but a majority remain unemployed. Besides that, the economy of Bangladesh has been suffering from a double-digit inflation. Example of inflation: The Retail Price Index surveys changes in the prices of goods and services. GOODS CDs Sweets Bread Total INFLATION 2010 PRICE 9.00 0.20 0.80 10.00 20111 PRICE 9.50 0.25 1.00 10.75 CHANGE 0.50 0.05 0.20 0.75 0.75 or 7.5%

In the above example prices have gone up by taka 0.75 or 7.5%

ADVERSE IMPACTS OF INFLATION AND UNEMPLOYMENT

Adverse Impacts of Inflation in Bangladesh: Most effects of inflation are negative, and can hurt individuals and companies alike, below are a list of negative effects of inflation in Bangladesh: a. Uncertainty. Future prices are unknown, making it difficult to plan investment and consumption decisions. This means that some production will not be undertaken because firms are not certain about profitability.

b. Shorter time horizons. Due to uncertainty over prices, firms and consumers are less willing to commit to long-term plans, like a 30-year mortgage, or building a new housing development over 10 years. Again, production falls due to uncertainty. c. Price inflation has immense effect on the Time Value of Money (TVM). This acts as a principal component of the rates of interest, which forms the basis of all TVM calculations. The real or estimated changes occurring in the rates of inflation lead to changes in the rates of interest as well. d. Hoarding. Inflation compels some business men by hoarding food and other commodities creating shortages of the hoarded objects. e. Decrease in the purchasing power.The most immediate effect of inflation is the

decrease in the purchasing power of money. Peoole must keep paying higher priches for the same quantites of goods and services they had before. f. Increased Risk Higher Uncertainties. Bangladesh does not possess conducive

political environment for growing industries and inflation accentuates these risks by making the market more instable. g. Inadequate capital fund . Due to continuous inflation our national savings are

decreasing day by day because cash decrease in value day after day, so our national capital is being highly affected by inflation. h. Illusions of Making Profits. Many companies in Bangladesh are out of the business

because of they were making profits while in reality theyre losing money. j. Causes an Increase in Tax Bracket. Presently the taxes are higher due to inflation in

our economy. k. Rising Prices of Imports. For this reason the price of our products and goods are

inflated and general people fail to buy to those with their present income source. m. Turmoil in loan payment. Inflation changes the allocation of income. This exerts maximum effect on the lenders than the borrowers at the time of persisting inflation, because the loans sanctioned previously are paid back later in the form of inflated dollars.

Adverse Impacts of Unemployment in Bangladesh 6. Many bad impacts of unemployment are prevalent in our economy but some of them are discussed below:

a. Social and Psychological Impact. Idleness and lengthy periods of unemployment made our people rusty and less productive. High unemployment already has given birth of crimes, frustration in our society. b. Political Instability. The high rate of unemployment is also responsible for political instability in our country. c. Lost Production. The single largest cost of unemployment is lost of production. Unemployment is thus negatively related with GDP. It has been estimated that 1 extra point of unemployment reduces GDP by 2 percent which is known as the Okuns law. The Okuns law postulates the following relationship between GPD and unemployment. d. The Distributional Impact. Decreasing scope of employment is triggering the poverty situation and creating inequality. Therefore poor people are faced with a twin pressure of loss of income and scope of getting employed. In general, unemployment hits the poor people harder than the rich. (Ibid, p-2) e. Lost Tax Revenue. The Government of Bangladesh is losing a large scale of revenue due to increased unemployment. (Ibid, p-2) f. The Exhaustion of Natural Wealth. deforestation in Bangladesh. Prolonged unemployment is causing serious

SOLUTION OF INFLATION AND UNEMPLOYMENT IN BANGLADESH Approach to Solve the Inflation a Increased discount rate: To control inflation central bank should increase the rediscount rate. It increase the cost of borrowing funds for business and consumer spending. b sale of govt: securities: Another method to check the inflationary boom is to resort to sales of government securities to the public by central bank. As the buying public purchases and pays for these government securities, the commercial banks reserves with the central bank are correspondingly reduced and they are obliged to adopt a restriction is credit policy in relation to business requirements. c Consumer credit control: This is a device, which is generally introduced during inflation to curb excessive spending on the part of consumers. d Higher margin requirements: Like the consumer credit control, this is also a method of selective credit control. The central bank in its pursuance of an anti-inflation policy may raise the margin requirements to higher levels. e Taxation: Taxation acquires increased importance as an anti-inflationary weapon during an inflationary boom. The problem during inflation is to reduce the size of disposable income in the hands of the general public in view of the limited supply of goods and services in the market. It is therefore, necessary to take away the excess purchasing power from the public in the form of taxes f Public borrowing: Public borrowing is another anti-inflation weapon, which is often utilized to contain inflationary pressures in the economy. The object of public borrowing is to take away from the public excess purchasing power, which, if left free, would surely exert an 3

upward pressure on the price level in view of the limited supplies of goods and service sin the economy. According to this plan, a certain percentage of the wages or salaries is compulsorily deducted in exchange for savings bonds, which result in blocking purchasing power for a definite period so as to control inflation. g Debt management: The existing public debt should be mange in such a manner as to reduce the existing money supply and prevent rather credit expansion. Anti-inflation debt management usually requires the retirement or repayment of bank held debt out of a budgetary surplus. The idea is that the government out of a budgetary surplus would retry the government securities held by commercial banks h Expansion of output: Increased production is the best antidote to inflation because, as pointed out above, the inflationary gap arises partly due to the inadequacy of output. But it becomes rather difficult to increase output at a time of inflation because of the full utilization of resources. Therefore, steps should be taken to increase the output of those goods, which seem to be extremely sensitive to inflationary pressures by shifting productive resources from the less inflation sensitive goods. Probable Solution to Unemployment in Bangladesh 10. The probable solutions are set out as below: a. Economic Growth. Faster economic growth is viewed as a means of generating more jobs. b. Methods of Accumulation and Dissemination of Information on Available Jobs and Workers could be Improved. In which job centers have a nationwide, integrated database of jobs, employers, and available employees. This type of database could reduce the time spent by an average worker on the unemployment roll and thus reduce the unemployment rate. c. Unemployment Agencies. Provide more training and education to the unemployed people. This could help improve computer skills and communication. These people will become more confident and employable. They could tighten their job search and job acceptance requirements. d. Improvements to the Education and Training. people, with a greater focus on vocational skills. It could be provided to young

e. Government Intervention. Government may take steps to support to struggling industries in order to try to save jobs. The Government needs to try to create demand in the economy. It could be as follows; (1) (2) (3) (4) Give grants to businesses to produce goods. Have projects such as road building. Cut interest rates to encourage spending. Cut income tax to encourage spending.

f. Population Control. Though the Government has taken many steps to reduce the population of Bangladesh but still many rooms are left to articulate the matter in an effective way. g. Education System. The education must improve to resist the unemployment.

h. Political Stability. Higher unemployment may lead to political unrest and make the economic situation worse in this densely populated country. So, it is hard to support contractionary economic policies c. Massive Industrialization. If we watch towards Japan, Korea, Malaysia what we will see? Due to Industrialization they have changed a lot. Without Industrialization no nation can expect strong economic basement and solution of unemployment problem. d. Incorporating Typical Industries. Especially Automobile and Electronics Industry are the major items to intensify a countries overall financial condition. Most of money is spent in these two sectors. Lot of population can be employed in these industries. e. Ambassadors Influence. To intensify the overall industrialization our Ambassadors who are employed in different countries specially Japan, Korea, Malaysia, Singapore can help the Government to adopt strong, effective, active and successful policy. f. Proper Development Planning. . We have a lot of workforce and a lot of money in the Bank. But due to lack in proper utilization and proper development planning we are staying in back. If we can take proper steps to obtain our economic growth, then we can remove our unemployment problem. g. Alleviation of Poverty. unemployment. Alleviation of poverty can help greatly to reduce

h. Linking the Markets. To reduce market gap we can increase the money flow and reduce the unemployment. i. Creation of Cooperative Society. Sometimes creation of cooperative society can help in reduction of unemployment. j. Demand Side Solutions. Many countries aid the unemployed through social welfare programs. These unemployment benefits include unemployment insurance, unemployment compensation, welfare and subsidies to aid in retraining. The main goal of these programs is to alleviate short-term hardships and, more importantly, to allow workers more time to search for a job. Opinion Which One to be the Most Harmful for Bangladesh I would say that unemployment is worse than inflation, and here are the reasons why. High inflation can typically cause high unemployment, although high unemployment may not cause high inflation. 5

When purchasing power is low, during high inflation, businesses need to reduce spending and reduce employment. When employment is low, businesses can borrow money to fund growth, which can cause inflation, and businesses can seek other, more organic methods of growth - such as increased production and reinvesting profits, which avoids inflation. It seems that high inflation would be worse than high unemployment because it can entail high unemployment. Although, high inflation can be easier to correct - by limiting loans, whereas correcting unemployment with organic business growth can be a slow process that requires effort. It appears to boil down to a question of if I would rather potentially have a job and no money (high inflation) or no job and no money (high unemployment). I would say that even though high inflation can entail high unemployment, high unemployment is worse than high inflation because it lowers the gross production of socity , it limits the opportunity for healthy financial living to a smalls number . Again, I would say unemployment is worse than inflation .

Conclusion:
Bangladesh has been suffering from a sort of economic growth stagnation with its GDP growing between 5.0 and 6.8 per cent for the last several years. At this moment, we may adopt an expansionary economic policy so that we can increase production, productivity and consequent employment generation through higher investment. Inflation has to be reduced by increasing productivity and supply and by decreasing average production cost. As a result, the overall national production, per capita income, economic growth and employment opportunities will increase.It is not so easy to solve all economic problems at a time from the economic point of view. Though it is one of the major responsibilities of the Government to provide job to those young generation but the Government has failed to meet the job demand among the large population. But we can minimize the unemployment through some measures like massive industrialization, population control, upgrading the education system, bringing political stability and Ambassadors influence etc. Though the Government has taken many steps to reduce the population of Bangladesh but still many rooms are left to articulate the matter in an effective way. We want to increase the overall production and productivity to reduce the problem of unemployment and at the same time we also want to keep the prices of the commodities under control.

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