It has recently been argued that the flattening of the Phillips curve, observed in many industrial countries over the last two decades, is due to globalization. However, so far only a very limited number of studies in the existing literature have managed to analyze the effect of globalization on the Phillips curve directly, and none of these are using industry-level data. In the present paper, Claus Aastrup Jensen estimates industry-specific Phillips curves for Denmark to test whether the finding of a weaker link between wages and the unemployment gap is due to changes within industries or should instead be ascribed to changes in the relative sizes of industries. In addition to this, he tests how far globalization through a variety of channels influences the slope of the Phillips curve. Based on input-output tables and linked employer-employee data, the author finds that the decline of the sensitivity of wages to the unemployment gap is caused almost entirely by changes in the slopes of industry-specific Phillips curves. Furthermore, that industries with an easier access to international outsourcing show weaker wage responses to the unemployment gap, whereas access to import of foreign final goods and foreign labour seem to have no effect on the slope of the Phillips curve.
Research Immigration and integration
Has Globalization Changed the Phillips Curve? Industry-Level Evidence on the Effect of the Unemployment Gap on Wages
Study paper no. 23