Title: A Backward Bending Supply of Labor Schedule and the Short Run Phillips Curve
Abstract: In a recent issue of this Journal Myles S. Wallace hypothesized a backward bending supply of labor schedule to explain a positively sloped short run Phillips curve [2]. Unfortunately, the hypothesis of voluntary reductions in labor supplied as nominal wages rise does not logically explain the observation of greater involuntary unemployment as the rate of inflation rises. The problem is that in attempting to provide a model that predicts increased (involuntary) unemployment under the impact of unanticipated inflation, Wallace focuses on variations in equilibrium employment, and thereby eliminates variations in unemployment from his analysis. As a result, his supply of and demand for aggregate labor formulations are inconsistent with the concomitant Phillips curve presentations. A logically viable hypothesis explaining a positively sloped short run Phillips curve must predict an unemployment disequilibrium under the impact of unanticipated inflation.
Publication Year: 1981
Publication Date: 1981-10-01
Language: en
Type: article
Indexed In: ['crossref']
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