Recent data suggests the "Phillips Curve" — the economic phenomenon in which wages and inflation grow when unemployment is down — may be dead, but Bloomberg Businessweek makes the case other trends are masking the curve.
Unemployment is down, but inflation is still fairly low. Data from November shows unemployment was 4.1 percent. Meanwhile, inflation was 1.8 percent, or 1.5 percent when food and energy prices are taken out, which is below the target inflation rate of 2 percent.
This can partially be explained because the unemployment rate is an imperfect measure of who is seeking work, Bloomberg's Peter Coy writes. A better measure would be the employment-to-population ratio, which has bounced back since the recession, but is still below pre-recession levels, according to the report.
When using this ratio in place of unemployment rates to track the behavior of the Phillips Curve, the theory still does not hold over long periods of time, according to the report. However, this is because larger sociopolitical trends affect the overall trajectory. For example, more women have continued to enter the workforce since the 1960s and improved Federal Reserve policies have kept inflation down, according to the report.
A Bloomberg analysis reveals the curve actually still holds true when focusing on each business cycle. Click here for the full story.