Working Paper

A closer look at the Phillips curve using state-level data

Abstract: Studies that estimate the Phillips curve for the U.S. use mainly national-level data and find mixed evidence of nonlinearity, with some recent studies either rejecting nonlinearity or estimating only modest convexity. In addition, most studies do not make a distinction between the relative impacts of short-term vs. long-term unemployment on wage inflation. Using state-level data from 1982 to 2013, we find strong evidence that the wage-price Phillips curve is nonlinear and convex; declines in the unemployment rate below the average unemployment rate exert significantly higher wage pressure than changes in the unemployment rate above the historical average. We also find that the short-term unemployment rate has a strong relationship with both average and median wage growth, while the long-term unemployment rate appears to only influence median wage growth.

Keywords: Phillips curve; monetary policy; unemployment; wage growth;

JEL Classification: E52; E58;

https://doi.org/10.24149/wp1409

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 2014-10-01

Number: 1409

Note: Published as: Kumar, Anil and Pia M. Orrenius (2016), "A Closer Look at the Phillips Curve Using State-Level Data," Journal of Macroeconomics, 47 (Part A): 84-102.