The Return of the Wage Phillips Curve (original) (raw)
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Has the U.S. Wage Phillips Curve Flattened? A Semi-Structural Exploration
2019
Unconditional reduced form estimates of a conventional wage Phillips curve for the U.S. economy point to a decline in its slope coefficient in recent years, as well as a shrinking role of lagged price inflation in the determination of wage inflation. We provide estimates of a conditional wage Phillips curve, based on a structural decomposition of wage, price and unemployment data generated by a VAR with time varying coefficients, identified by a combination of long-run and sign restrictions. Our estimates show that the key qualitative findings from the unconditional reduced form regressions also emerge in the conditional evidence, suggesting that they are not entirely driven by endogeneity problems or possible changes over time in the importance of wage markup shocks. The conditional evidence, however, suggests that actual changes in the slope of the wage Phillips curve may not have been as large as implied by the unconditional estimates. Resumen Jordi Galí CREI, UPF and Barcelona GSE Luca Gambetti UAB and Barcelona GSE
Time-Varying Degree of Wage Indexation and the New Keynesian Wage Phillips Curve
2016
Cost-of-Living-Adjustment (COLA) coverage figures suggest a time variation in the degree of wage indexation. In spite of this observation, most current literature conveniently assume a constant degree of indexation as this variable is not directly observable. This study intends to empirically measure the time variation in the degree of wage indexation. To this end, we derive a reduced form version of the New Keynesian Wage Phillips Curve under the assumption of a time varying degree of wage indexation. A state space methodology is then employed in estimating this model using data of selected OECD countries. The study subsequently investigates variables influencing the time variation in the degree of wage indexation. Our results consistently suggest a substantial time variation in the degree of wage indexation in all countries considered. The wage indexation estimates obtained for the US bear remarkable similarities with the figures suggested by COLA coverage. It is subsequently show...
Reconciling the Wage Curve and the Phillips Curve
Journal of Economic Surveys, 2005
Abstract. The wage curve is the negative relationship that links wage levels to the unemployment rate. It fits accurately with modern non-competitive labour-market models, but goes against a Phillips-curve modelling, because the latter ties wage growth to the unemployment rate. In this article, we present a comprehensive review of these non-competitive models, highlighting recent contributions that try to eliminate the possible ‘gap’ that exists between the concepts of the wage curve, on the one hand, and the Phillips curve, on the other.
Journal of Economic Dynamics & Control, 2011
We develop a DSGE model with …rm-speci…c labor where …rm-level wage bargaining and price setting are subject to Calvo-type staggering. This is in general an intractable problem due to complicated intertemporal dependencies between price and wage decisions. However, the problem is signi…cantly simpli…ed if we, in line with empirical evidence, assume that prices can be changed whenever wages are. We show that the price-and wage-setting relationships are substantially altered by the introduction of …rm-speci…c labor. Speci…cally, the in ‡ation response is substantially dampened, whereas the wage in ‡ation response is increased as compared to models with freely mobile labor. These distinctive features of the model with …rm-speci…c labor is supported by empirical evidence from a structural VAR.
Further evidence on the wage curve
Economics Letters, 1992
In this paper we replicate and extend the wage curve proposed by . Our replication only partly confirms their findings. Our extensions relate to gender effects and to a refinement of the unemployment measure. The results show that wage curves for males and females differ. For females unemployment both has a wage effect and a discouraged worker effect.
2005
The Wage Curve Reloaded * This paper provides evidence for the existence of a wage curve-a micro-econometric association between the level of pay and the local unemployment rate-in modern U.S. data. Consistent with recent evidence from more than 40 other countries, the wage curve in the United States has a long-run elasticity of approximately-0.1. In line with the paper's theoretical framework: (i) wages are higher in states with more generous unemployment benefits, (ii) the perceived probability of job-finding is lower in states with higher unemployment, and (iii) employees are less happy in states that have higher unemployment. We conclude that it is reasonable to view the wage curve as an empirical law of economics.
From Phillips curve to wage curve
De Economist, 1992
In most traditional macro-economic models of the Netherlands the wage equation is specified by a Phillips curve, in which wage growth is negatively related to the unemployment rate. This paper shows, however, that wage formation can better be described by the so-called wage curve, in which the wage level instead of wage growth depends negatively on the unemployment rate.