From Phillips curve to wage curve (original) (raw)
Related papers
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.
The Return of the Wage Phillips Curve
Journal of the European Economic Association, 2011
The standard New Keynesian model with staggered wage setting is shown to imply a simple dynamic relation between wage in ‡ation and unemployment. Under some assumptions, that relation takes a form similar to that found in empirical wage equations-starting from Phillips' (1958) original work-and may thus be viewed as providing some theoretical foundations to the latter. The structural wage equation derived here is shown to account reasonably well for the comovement of wage in ‡ation and the unemployment rate in the U.S. economy, even under the strong assumption of a constant natural rate of unemployment.
The equilibrium rate of unemployment in the Netherlands
2000
The rise in unemployment in the 1970s and its subsequent persistence have challenged the conventional wisdom embodied in the standard Phillips curve, namely that equilibrium unemployment is fairly constant over time. This paper attempts to explain the apparent non-constancy of equilibrium unemployment by developing and estimating a structural model in which equilibrium unemployment is endogenous and results from the interactions of wage bargaining and the price and employment determination of firms. We find that the three major determinants of equilibrium unemployment are tax rates, the replacement rate and the real interest rate. The rise in unemployment in the 1970s and early 1980s was mainly due to a rise in the first two factors. That equilibrium unemployment remained high when tax rates and the replacement rate were reduced in the 1980s and early 1990s is attributed to the rise in real interest rates during this period.
Labour Flows as Determinants of the Wage-Price Spiral: An Empirical Analysis for The Netherlands
Labour, 2001
This study presents an empirical analysis of the influence of labour market flows on wage and price formation. A system of wage, price and employment equations after Nickell (Oxford Bulletin of Economics and Statistics 49: 103± 128, 1987) is estimated, including labour flows as indicators of labour market tightness in the wage equation. An impulse response analysis using this system shows how changes in the flow of layoffs (flow from employment to unemployment) may be the basis of short-run Phillips curve effects in The Netherlands.
Exploring Wage Phillips Curves in Advanced Economies
2019
We investigate the extent to which excess supply (demand) in labour markets contributes to a lower (higher) growth rate of average nominal wages for workers. Using panel methods on data from 10 advanced economies for 1992–2018, we produce reduced-form estimates of a wage Phillips curve specification that is consistent with a New Keynesian framework. We find comparable effects on nominal wage growth from several indicators of "slack" in the labour market: unemployment rates, unemployment rate gaps, the prime-age employment-to-population ratios, a composite labour market indicator constructed using a principal component for a wide range of labour force data, and unemployment rates separated by duration of unemployment. Our results provide evidence that while the slope of the wage Phillips curve seems to have become flatter following the global financial crisis in 2008, the relationship still appears to be highly significant. We find that the long-term unemployment rate (unem...
… Bank Research Memorandum WO&E No 677, 2001
Since the mid nineties unemployment has substantially decreased in some EMU-countries. One important factor underlying this development is wage moderation. This paper investigates wage formation and wage development. Using a theoretical wage bargaining model main determinants of formation are described, a non-linear wage equation is derived and estimated with annual or quarterly data of the Netherlands, Spain and Ireland. The effects of the individual determinants on wages are calculated and, in addition, each determinant’s contribution to the total wage developments is analysed over the last three decades. It follows that each decade is characterised by few dominating determinants. The contribution of unemployment has altered considerably.
An Introduction to the Wage Curve
Journal of Economic Perspectives, 1995
This paper documents a statistical regulatity or law. It shows that there exists a downward-sloping curve linking the level of a worker's pay to the unemployment rate in the worker's region. The same curve can be found in microeconomic data sets from sixteen countries. The existence of this curve raises doubts about conventional wisdom in labor economics, regional economics, and macroeconomics.
Wage and Price Phillips Curves
Royal Economic Society Annual Conference 2003, 2003
In this paper we introduce a small Keynesian model of economic growth which is centered around two advanced types of Phillips curves, one for money wages and one for prices, both being augmented by perfect myopic foresight and supplemented by a measure of the medium-term inflationary climate updated in an adaptive fashion. The model contains two potentially destabilizing feedback chains, the so-called Mundell and Rose-effects. We estimate parsimonious and congruent Phillips curves for money wages and prices in the US over the past five decades. Using the parameters of the empirical Phillips curves, we show that the growth path of the private sector of the model economy is likely to be surrounded by centrifugal forces. Convergence to this growth path can be generated in two ways: a Blanchard-Katz-type error-correction mechanism in the money-wage Phillips curve or a modified Taylor rule that is augmented by a term, which transmits increases in the wage share (real unit labor costs) to increases in the nominal rate of interest. Thus the model is characterized by local instability of the wage-price spiral, which however can be tamed by appropriate wage or monetary policies. Our empirical analysis finds the error-correction mechanism being ineffective in both Phillips curves suggesting that the stability of the postwar US macroeconomy originates from the stabilizing role of monetary policy.