Skip to main content

What has happened to the Phillips curve?

Hopes that policymakers can engineer a soft landing rest heavily on the belief that wage growth can be tamed without a surge in unemployment. This ‘Phillips curve’ relationship has changed recently, with G7 pay growth now higher than it was before 2020 despite unemployment being only slightly lower. We suspect that pay growth can moderate without big job losses. But the risk is that mismatches wrought by the pandemic prove more persistent than we envisage and that expectations of sustained high inflation are becoming embedded in pay deals, requiring tighter policy and major layoffs to bring inflation to heel.

Become a member to read more

This is premium content that requires an active Capital Economics subscription to view.

Already a member?

You may already have access to this premium content as part of a paid subscription.

Sign in to read the content in full or get details of how you can access it

Register for free

Sign up for a free account to gain:

  • Unlock additional content
  • Register for Capital Economics events
  • Receive email updates and economist-curated newsletters
  • Request a free trial of our services


Get access