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Phillip’s Curve

Why is it in News?

  • Some economists are of the view that inflation in India is under control as the unemployment rate is high, and the relation between inflation and unemployment rate is depicted by the Phillip’s curve.

What is the Phillip’s Curve?

  • The inverse relationship between unemployment rate and inflation when graphically charted is called the Phillips curve.
  • William Phillips pioneered the concept first in his paper "The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957,' in 1958.

Graphical Representation:

When the unemployment rate is less, inflation will be more and when unemployment rate is high, inflation will be less.

Breaking the Concept further:

  • This curve points out that when economic growth happens, it creates job and due to jobs there will be money with the public and thus the demand of the products will increase leading to inflation.
  • In a nutshell it means ‘high levels of employment can be achieved only at high levels of inflation’.