Abstract

PALLEY, Thomas I.. The backward bending Phillips curves: competing micro-foundations and the role of conflict. Inv. Econ [online]. 2009, vol.68, n.270, pp.13-36. ISSN 0185-1667.

This paper excavates the micro-foundations of the Phillips curve and presents a model of the backward bending Phillips curve that incorporates elements of wage conflict. This unifies the conflict and demand-pull approaches that are often viewed as separate. There are two alternative micro-foundations for the Phillips curve. One emphasizes worker-firm conflict and incorporation of inflation expectations into nominal wages: the other emphasizes behavioral economics and near-rationality of expectations. A Phillips curve can emerge either because workers systematically under-predict inflation via near-rationality, or because workers do not fully incorporate inflation expectations owing to local unemployment conditions that induce wage concessions.

Keywords : backward bending Phillips curve; behavioral economics; conflict economics.

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