The Backward–Bending Phillips Curve And The Minimum Unemployment Rate Of Inflation: Wage Adjustment With Opportunistic Firms
Year: 2003
Type: article
Abstract: 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.
Source: Manchester School
Author: Thomas I. Palley
Institution: Open Society Foundations
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2161965598