ABSTRACT
It is now almost a quarter of a century since (in 1958) that famous article by Phillips was published,1 introducing the Phillips curve. Ever since it has populated countless numbers of theoretical and policy debates and books. Yet the contents of that article were anything but sensational. With the aid of very long-term, though not absolutely reliable data, it showed that an inverse relationship exists between wage inflation and unemployment: the higher the inflation rate the lower is normally the rate of unemployment and vice versa. This was not a new discovery-it had already been observed in earlier studies without making a great noise about it2-and it is moreover a fact which is easily understood even for a person with no special economic training. This is so because experience has proved that in the ups and downs of the business cycle prices, wages and employment have a tendency to move together. This suffices to make the stipulated relation between wage inflation and unemployment a plausible phenomenon.
