Does unemployment reduce production? An estimate for countries with differences in the level of development: Ecuador, Mexico and Germany

Abstract

The objective of this research is to analyze the effect of unemployment on inflation using the Phillips curve for Ecuador, Mexico and Germany, respectively, in the period 1991-2015. For the analysis of the model we obtain time series data obtained from the World Bank 2017, taking as a dependent variable the annual inflation rate that is measured by the consumer price index; And as an independent variable the unemployment expressed as a percentage of the total percentage of the labor force. The results show that in Ecuador, like Mexico, the theoretical model does not comply with the established hypothesis, that is, unemployment does not represent a significant effect on inflation, since other variables determine it. The trend varies by adding control variables that are in line with the economic realities of each country that provide a better fit in the model. In Germany due to its characteristics of developed country the theoretical hypothesis is fulfilled even when adding control variables.