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The Backward–Bending Phillips Curve And The Minimum Unemployment Rate Of Inflation: Wage Adjustment With Opportunistic Firms

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  • Thomas I. Palley

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.

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  • Thomas I. Palley, 2003. "The Backward–Bending Phillips Curve And The Minimum Unemployment Rate Of Inflation: Wage Adjustment With Opportunistic Firms," Manchester School, University of Manchester, vol. 71(1), pages 35-50, January.
    • Handle: RePEc:bla:manchs:v:71:y:2003:i:1:p:35-50
    DOI: 10.1111/1467-9957.00333
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    Cited by:

    1. Lucas, Gustavo Daou, 2021. "The (dampened) wage-price spiral: Conflict, endogenous markup and inflation," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 558-566.
    2. Philipp Heimberger, 2021. "Do higher public debt levels reduce economic growth?," FMM Working Paper 74-2021, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    3. Thomas I. Palley, 2008. "The Backward Bending Phillips Curves: A Simple Model," Working Papers wp168, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Solikin M. Juhro & Bernard Njindan Iyke, 2019. "Forecasting Indonesian Inflation Within An Inflation-Targeting Framework: Do Large-Scale Models Pay Off?," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 22(4), pages 423-436, December.
    5. Sin-Yu Ho & Bernard Njindan Iyke, 2019. "Unemployment And Inflation: Evidence Of A Nonlinear Phillips Curve In The Eurozone," Journal of Developing Areas, Tennessee State University, College of Business, vol. 53(4), pages 151-163, Fall.
    6. Mark Setterfield & Robert A Blecker, 2022. "Structural change in the US Phillips curve, 1948-2021: the role of power and institutions," Working Papers PKWP2208, Post Keynesian Economics Society (PKES).
    7. Petr Sedláček, 2006. "Institutional Conditions of Monetary Policy Conduct in the Czech Republic," Prague Economic Papers, Prague University of Economics and Business, vol. 2006(2), pages 113-134.
    8. Giorgos Argitis, 2011. "A view on post-Keynesian interest rate policy," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 8(1), pages 91-112.
    9. Palley, Thomas, 2012. "The economics of the Phillips curve: Formation of inflation expectations versus incorporation of inflation expectations," Structural Change and Economic Dynamics, Elsevier, vol. 23(3), pages 221-230.

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