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The Empirical Foundations of the Phillips Curve: Evidence from Canadian Wage Contract Data
William Craig Riddell
Abstract
Considerable research effort has been devoted to the determinants of changes in money wage rates. Most of this research has used aggregate wage index data to form the dependent variable. However, there are substantial difficulties involved with the use of such data. Recently a number of important papers have appeared which systematically examine these difficulties and recommend appropriate estimation and hypothesis testing procedures. The conclusions obtained from the use of these appropriate methods are quite negative. One purpose of this study is to determine whether this negative assessment of economists' knowledge of the determinants of wage changes is in fact appropriate. In order to do this, the study employs individual contract data. The study also examines the expectations hypothesis, the effect of unanticipated inflation on wage changes ("catch-up") and the effect of uncertainty about future inflation on negotiated settlements.
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