Philips Curve



Philips Curve

In this paper, we will discuss the article of Lim, Dixon and Tsiaplias on “Phillips Curve and the Equilibrium Unemployment Rate”. The study found out a relationship between wage inflation and unemployment in Australia. The association has been changing with time and the study will help economist determine how it is affecting the study.

Phillips curve (Phillips curve) is a curve representing the relationship between inflation and unemployment rates. It was examined by economist lectured in England, namely the New Zealand origin of Alban W. Phillips in 1958. Publication took place in the famous article of 1960, in which Philips showed a statistical relationship between wage inflation and unemployment in Britain in the years 1861-1957. He put down the inflation rate on the vertical axis and unemployment on the horizontal axis to yield a set of points, which presented the results of observations for each year. The curve is best fit to award points was called Phillips curve. During the period under study, which was always important, the higher wage inflation, the less unemployment.

Phillips curve was very often used to show the effects of changes in global demand. If global demand increase, inflation rose which entailed a fall in unemployment. When global demand falls, this leads to downward movement along the curve. Phillips curve is convex to the origin, it is clarified that with the increase in global demand initially there is a surplus of labor that can be employed to meet the increased demand, without having to increase wages. The decrease in the labor force, employers must offer ever-higher salaries (Lebergott, 1964).

Location of Phillips curve is dependent on factors that cause inflation and unemployment. We can distinguish here such as: structural unemployment, and friction, as well as the costs of inflation, inflation-induced structural expectations. If any of ...