WAGE GROWTH AND SECTORAL SHIFTS - PHILLIPS-CURVE REDUX

Nominal wages grew faster over the seventies than predicted from standard Phillips curve analyses. This paper argues that sectoral disturbances cause higher unemployment but do not lead to higher nominal wage growth. Upward wage pressures in some industries are tempered by downward adjustments in others. Only that portion of unemployment that is net of the effects of compositional shifts in the structure of labor demand influence nominal wage growth. Once unemployment has been purged of the effects of sectoral shifts, the apparent instability of the Phillips curve is resolved. This result holds for various measures of sectoral shifts.