Phillips curve facts for kids
The Phillips Curve is an idea in economics that helps us understand how two important things in an economy are connected: unemployment (people without jobs) and inflation (when prices go up). It suggests that when unemployment is low, prices and wages tend to rise faster.
This idea was first noticed by a British economist named William Phillips. He looked at information from the United Kingdom between 1861 and 1957. He saw that when fewer people were out of work, wages often increased more quickly.
Contents
What is the Phillips Curve?
The Phillips Curve shows a simple idea: there's often a trade-off between unemployment and inflation. This means that if a country wants to lower unemployment, it might have to accept a bit more inflation. If it wants to lower inflation, it might see unemployment go up.
Think of it like this:
- When many people have jobs, businesses might have to pay higher wages to find and keep workers.
- Higher wages can mean businesses charge more for their products. This leads to higher prices, which is inflation.
- So, low unemployment can lead to higher inflation.
Who Discovered This Idea?
The Phillips Curve is named after William Phillips. He was an economist from New Zealand who worked in Britain. In 1958, he published a famous paper. In this paper, he showed the connection between wage changes and unemployment in the UK. He studied data from nearly 100 years.
His research suggested a stable link. This meant that governments could choose between different levels of unemployment and inflation. They could try to keep unemployment low, knowing inflation might be higher. Or they could fight inflation, knowing unemployment might rise.
Why the Curve Changed
For a while, many economists and governments believed the Phillips Curve was always true. However, things changed in the 1970s. During this time, many countries faced a new problem. They had both high inflation and high unemployment at the same time. This situation is called stagflation.
Stagflation showed that the simple trade-off didn't always work. It proved that the Phillips Curve might not hold true over a long period. Other factors, like people's expectations about future prices, also play a big role.
Short-Run vs. Long-Run
Even though the Phillips Curve didn't explain everything in the 1970s, many economists still think it's useful. They believe it still shows a trade-off in the short run. The "short run" means a shorter period, like a few months or a year.
In the short run, if a government tries to boost the economy, it might create more jobs. This lowers unemployment. But it could also cause prices to rise faster. So, for a short time, the original idea of the Phillips Curve can still be seen. However, in the "long run" (over many years), the relationship becomes more complex.
Related pages
Images for kids
-
The original curve drawn for pre-WW1 data
-
U.S. inflation and unemployment 1/2000 to 8/2014
See also
In Spanish: Curva de Phillips para niños
