The Flattening of the Phillips Curve

The Economist observes –

http://www.economist.com/news/united-states/21678231-wage-growth-last-accelerating-living-standards-will-continue-stagnate-looking

“This has cast doubt on the conventional wisdom that a tight labour market leads firms to bid up wages, resulting in higher inflation. Lael Brainard, a Fed governor, recently declared that, unlike some of her colleagues, she views the labour market as an insufficient bellwether for price rises. The link between unemployment and wage growth—the so-called “wage Phillips curve”—has flattened in recent years, for several reasons. One is low participation in the labour market. At just under 81%, the proportion of 25- to-54-year-olds in the labour force is lower than at any time since 1984. For men, the labour-force participation rate is lower than in supposedly sclerotic France or social-democratic Sweden. Many of these potential workers gave up looking for a job during the long hangover from the financial crisis. As a result, the fraction of 25-to-54-year-olds with jobs has recovered only about halfway to its pre-recession peak. Inactive folk act as a brake on wage growth if better prospects can tempt them back into the labour force.”

Related:

Phillips Curve and Fed Monetary Policy

http://www.nytimes.com/2015/10/25/upshot/the-57-year-old-chart-that-is-dividing-the-fed.html

Phillips Curve in Recent Decades

http://www.wsj.com/articles/the-fed-has-a-theory-trouble-is-the-proof-is-patchy-1440352846

Fed and the Long Term Unemployed

http://www.wsj.com/articles/the-feds-conundrum-will-holding-down-rates-spark-inflation-without-helping-the-long-term-unemployed-1403059133