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Employment and the strategy review

To keep prices stable, we adjust our monetary policy depending on how the economy is doing. Employment is an important part of the economy and can influence how prices change over time. We keep employment on our radar when making decisions, and we also keep an eye on how those decisions in turn affect employment.

Why was employment part of our strategy review?

Our monetary policy interacts with the economy

Our job is to keep prices stable. That means holding inflation – the rate at which the overall prices for goods and services change over time – low. To do this well, we need to pay close attention to the economy and how our monetary policy interacts with it.

To get a full picture of how the economy is doing, we also need to look at how many people have jobs, what kind of jobs those are and how much they pay. In other words, we also have the employment situation on our radar when we make decisions. And we keep an eye on how our decisions in turn affect employment.

Employment in a monetary union

We look at employment in the euro area as a whole

Getting a complete view of employment in our monetary union means looking at all 19 euro area countries. That view is very varied. It includes all sorts of people – for instance, the young and old, and those with lots of education and those with little.

Some groups find it harder to get jobs than others. This is especially the case of people who have been out of work for a while and lose their job skills. The employment situation matters because it is key to understanding why our societies have become more unequal in recent decades. And what governments can do to change this.

What role does employment play in our monetary policy?

We make decisions with the economy in mind

We adjust our monetary policy depending on how the economy is doing. Employment is an important part of that consideration. When there are more jobs than workers to fill them, prices increase faster. This is because there is more demand for those goods or services. But it is also due to businesses paying higher wages to attract workers so they can meet this new demand. They pass on some of these extra costs to consumers. When people lose their jobs, there is less money to go around. Fewer people head to the shops and spending in the economy falls. Prices do not increase by as much.

But it is not just about the number of people in employment. The quality of these jobs also matters. A person with a well-paid, stable position will spend and save differently from someone with an unstable job that pays poorly.

How does monetary policy contribute to employment?

Stable prices support employment…

How easy it is for people to find and hold onto good jobs depends mainly on national policies. But stable prices can support the creation of jobs too. When prices are steady, businesses and people can plan and invest better. That can create a more prosperous economy. This leads to businesses hiring more people to meet the higher demand for goods and services.

… and so too can our monetary policy decisions

Our monetary policy itself can at times also support employment in the economy. For instance, if the economy is not doing well, inflation may fall. We can adjust our monetary policy to make borrowing cheaper for households and firms. That can help boost spending and investment. While this helps stabilise inflation, it also helps keep people in jobs and support the creation of new ones. Keeping prices stable over the “medium term” supports full employment.

What role will employment play in our monetary policy going forward?

Keeping prices stable is good for jobs

During our listening events, we heard how concerned people, particularly younger ones, were about the quality of jobs and their chances of getting one. Of course, governments are responsible for creating an environment in which people can find good and stable jobs. But we can make our own contribution by keeping prices stable. That is why we will also take employment into account when making monetary policy decisions.

Employment and the conduct of monetary policy in the euro area
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