# Phillips theorem

- Canonical URL: https://www.gerhardmerk.de/phillips-theorem
- Post ID: 591863
- Modified: 2023-07-25T21:12:01+00:00
- Language: en

## Definition

When inflation rises, real wages fall (real income: nominal wage minus price increase). Companies therefore demand additional labor, which increases employment. Inflation therefore leads to more employment. - However, this conclusion is demonstrably false. After all - businesses are not surprised by a higher inflation rate, if only because of rising menu costs. - The unions, under pressure from their members, can hardly tolerate inflation-caused loss of income for long; and they will very quickly push through higher collective agreements - as experience has taught them to overcompensate, i.e. to include the progress of inflation in advance. - See unemployment rate, inflation-stable, disinflation, money oversupply, real estate bubble, inflation, inflation compensation, purchasing power theory, wage-price spiral, menu costs, low interest rate policy, zero interest rate, nominal value principle, sacrifice ratio, growth-employment relationship, second-round effects. - Cf. ECB Monthly Bulletin of June 2011, pp. 12 ff. (assessing inflation since 1999 using a Phillips curve), ECB Monthly Bulletin of November 2013, pp. 102 ff. (link between underutilization and inflation), >German Bundesbank Monthly Bulletin of April 2014, p. 21 (HICP and unemployment; HICP and output gap; overviews; references). Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent! University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec. Professor Dr. Eckehard Krah, Dipl.rer.pol. E-mail address: info@ekrah.com https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk https://www.jung-stilling-gesellschaft.de/merk/ https://www.gerhardmerk.de/

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