Conflict between employment and inflation: theory and facts

Abstract

In this paper, we have examined the Indian data in relation to price changes and output changes in the industrial sector. Employment and output are well correlated but the rate of growth of the former is lower than that of the latter. In general, it appears that periods marked by sharp increase in price lever are associated with lower growth rates output and years of low price changes with high growth rates in industrial output. A disaggregated analysis of the output and price changes relating to various industry groups also indicates a negative association between price change and output change. There can be several explanations for this phenomenon. Causation can run in either direction. However, the general conclusion is that contrary to the general belief, industrial output has grown faster in periods of small price increases than in periods of high price increases.