Or have technology developments and changes in the structure of developed world labor markets merely shifted significantly the slope of the Phillips Curve and the point at which the demand for labor results in higher wage costs?
With potentially significant implications for monetary policy and for a broad range of asset classes on both a tactical and strategic basis, this month’s Investment Insights digs a little deeper into what economists have dubbed ‘the wage growth conundrum’.
Despite very low levels of unemployment, key measures of wage growth in developed economies are not rising anywhere near as much as the classic economic theory of the Phillips Curve suggests they should. Core inflation remains subdued.
Yet the Fed has maintained, sometimes stridently, that wage growth will drive inflation higher. So are the relationships between unemployment, wage growth and inflation shifting, delayed or broken? The answer has significant implications for monetary policy and the outlook for equity, bond and credit markets.