why does low unemployment cause inflation?
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As a basic cause and effect, low unemployment causes employers to increase their remuneration packages (higher wages on offer for open positions) to compete in a smaller pool of available employees. The employer now has an increased cost base, which they pass onto their customers. Their customers cost of living increases which means they seek an increase in pay. This is not just limited to hiring for new employees, but existing employees become aware of pay differentials within the same company or other companies in their industry and seek higher wages. Which begins the cycle.
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