Premium
The Backward–Bending Phillips Curve And The Minimum Unemployment Rate Of Inflation: Wage Adjustment With Opportunistic Firms
Author(s) -
Palley Thomas I.
Publication year - 2003
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00333
Subject(s) - economics , phillips curve , inflation (cosmology) , unemployment , nairu , wage , misery index , efficiency wage , keynesian economics , labour economics , minimum wage , full employment , macroeconomics , physics , theoretical physics
This paper presents a theory of the backward–bending Phillips curve. There is aminimum unemployment rate of inflation which offers a policy alternative to the non–accelerating inflation rate of unemployment. Nominal wages are downwardly rigid because workers oppose cuts initiated from within the employment relation. Instead, workers may acceptreal wage adjustments effected by increases in the general price level, a variableoutside individual firms’ control. This is why inflation ‘greases’labor market adjustment. However, workers resist too rapid a real wage adjustment,and too high an inflation generates wage resistance that cancels the grease effect and increases unemployment.