Effect of Inflation on Unemployment in Kenya

Unemployment arises when people are physically capable and willing to work at any existing rate of wages, but they cannot find jobs. Different theories and studies differ on the crucial determinants of unemployment in an economy. In Kenya, policies and strategies have been put in place by the government to reduce unemployment. However, this problem remains a threat to the economic growth. This study, therefore, aimed to analyze the effects of inflation on the unemployment. The causal research design was used to establish the effects of this macroeconomic variable on the unemployment rate. A Cointegration methodology was used to establish the cause-effect relationship between the variables while the hypothesis was tested at 5 % level of significance. The study revealed that inflation rate with p-value less than than 0.05 had an inverse relationship with an unemployment rate in the long run as well as in short run. The study recommended that the government should come up with policies that help in ensuring a minimum possible rate of inflation in the country to achieve lowest possible levels of unemployment. The study would form the basis for further study to establish the optimal rates of the inflation and unemployment in Kenya.