Isabella Diaz and Niamh McKevitt

Adjusting the Phillips Curve for the Productivity Wage Gap

Presented by: Isabella Diaz and Niamh McKevitt
Faculty Advisor: Dr. Meghan Mihal, Professor of Economics and Dr. Rossen Trendafilov, Assistant Professor of Finance

The divergence between real hourly wages and labor productivity has led to the phenomena called the productivity wage gap. Evidence of a flattening Phillips curve arose in the 1980’s, around the same time as the emergence of the productivity wage gap. We hypothesize that the growing productivity wage gap is one of the explanations for the current low inflation despite the tight labor market, thus inferring that there is an inverse relationship between the two. We test this hypothesis through regression analysis, and we find that the correlations between the productivity and various measures of inflation further explain and verify this relationship regarding the productivity wage gap as a determinant of inflation.