Unemployment and the Rate of Change of Money Earnings in the United States, 1900-1958

In a recent article Professor Phillips put forward the hypothesis that the rate of change of money wage rates can be explained by the level of unemployment and the rate of change of unemployment, except in or immediately after periods of rapidly rising prices.' The relation between unemployment and the rate of change of wage rates, according to Phillips, is likely to be non-linear. Also, at the same level of unemployment, wage levels will rise faster when unemployment is declining than when it is increasing. Working on the United Kingdom data, Phillips argued that there was statistical evidence to support the hypothesis. Dr. Lipsey, in a later article, has reconsidered Phillips' work in greater detail.2 Unlike Phillips, Lipsey introduces changes in the cost of living as an additional explanatory variable. Lipsey concluded that the three variables between themselves appear adequately to account for the variations in the rate of change of money wages in the United Kingdom, although their relative explanatory power had changed as between 1862-1913 and 1917-1957. The purpose of this article is to test a similar hypothesis for the United States for the period from 1900 to 1958.3 The available data on wages, however, relate to labour earnings rather than to wage rates. This study, therefore, examines the relation between unemployment and the rate of change of hourly earnings in the periods 1900-1932, 1933-1948 and 1948-1958.4

Demographic economics · Earnings · Economics · Explanatory power · Labour economics · Macroeconomics · Phillips curve · Unemployment · Wage · Economic Theory and Policy

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