Phillips Curve and Wage Inflation Dynamics

Abstract: Debates around the Phillips curve, a long-time relationship between unemployment and wage inflation, have been haunting both academics and practitioners over the past few years. Despite unemployment rate at its lowest level in decades, wage growth has been weak in most of the developed countries. There can be various factors that may be playing a part, ranging from a collapse in the rate of union membership for private-sector employees to a higher concentration of large firms (employers have become monopsonists, impacting level of wages). Therefore, in this article, we review the development of the Phillips Curves in the major development economies and look at the short-run and long-run determinants of wage inflation according to recent empirical research.

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