ABSTRACT
To Bill Phillips’ surprise his 1958 paper in Economica on ‘The Relation between Unemployment and the Rate of Change of Money Wage Rates in the UK, 18611957’ generated tremendous interest, and within months the tradeoff between inflation and unemployment was being debated by Parliament. Phillips viewed his relation in terms of classical supply and demand price adjustments, but had not examined adjustment processes. Richard Lipsey tried to push the classical theory further by introducing labor market segmentation. At the London School of Economics (LSE) at the time, I became convinced that the classical adjustment process was inadequate to explain the Phillips’ relation, and that a much more complex process of wage, price, and employment change was involved.1
