The negative relationship between the unemployment rate and inflation, first demonstrated by Phillips in the late 1950s, appears to be less and less empirically significant since the 1990s in both Europe and the United States. In France this relationship became much weaker, and was temporarily reversed, for a period in the 2000s when the pace of per capita productivity (in value) picked up.

This report tests the persistence of that relationship, based on a joint study of the French and American contexts, separating the effect of unemployment on wages on the one hand, and the transmission of wages to prices on the other. It also measures the direct effects of productivity on both wages and prices.

The rise in unemployment during the financial crisis of 2008-2009 clearly held back wage growth. While it rapidly slipped back in the USA, sustaining wages, it remained high in France and continued to weigh heavily on earned income. Nevertheless, productivity remains the principal determinant of wages. In both France and the USA, it is the profile of productivity gains which has been the primary force behind wage variations since the crisis.

While the transmission of wages on prices has been increasingly disrupted, the analysis shows that wages remain the principal determinant of price dynamics: the slowdown in wages, particularly since the crisis, has taken its toll on inflation. In France, recent wage dynamics do not suggest that a sharp acceleration in prices is likely, at least in the short term.