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The Phillips Curve Economists agree that unemployment and inflation are two of the major macroeconomic problems of the twentieth century. If a relationship between the two existed then this would be a major break through for the macro management of the economy. Phillips' work was empirical - started with evidence and worked towards a theory. The causation for the Phillips theory was that the level of unemployment caused the rate of change in money wages to be what it was. 'What economic theory lies behind this?' As unemployment decreases the available pull of labour goes down. This means that resources become increasingly scarce and workers can push for higher wage rates. Or as unemployment decreases more people have more income and spend more causing Aggregate Demand to increase leading to Demand Pull Inflation. What Phillips' curve did propose was that an inverse relationship between unemployment and the rate of change in money wages...

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