ABSTRACT
The "Phillips curve" that emerges from the results may be well being entirely illusory. As a descriptive device, this curve is more than an approximation of the observed negative association between the inflation and unemployment rates during part of the postwar period. A short-run Phillips curve would be expected to prevail at any point in time, showing the consequences of unanticipated fluctuations in the rate of inflation. Wage inflation should reflect two main forces: the growth in labor productivity that workers are able to capture in the competitive bargaining process, and the expected rate of inflation — which is incorporated in wage settlements because workers and owners are smart enough to be interested in purchasing power, not money income. Inflation may be associated with a rapid change in the unemployment rate, but the level of this rate should not have anything to do with the process.
