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The unemployment rate has fallen in the 1990s, but the expected subsequent increase in inflation has not occurred. Some have attempted to explain this in terms of developments in the labor market--specifically, increased fears of job loss. However, measures of job insecurity do not help to explain why the Phillips curve has been less reliable than in the past...
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Other factors, such as the behavior of labor costs other than wages, fluctuations in the value of the US dollar, and other developments affecting the markup of prices over wages, more likely explain the unusually subdued behavior of inflation in the United States.
Conclusions: Finally, actual inflation can be influenced by expected inflation through the wage- setting process...
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The effects of inflation on the labor market
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