The Philips Curve Is a Tool for Waging Class War on Workers
The Phillips curve holds that low unemployment drives inflation, meaning that controlling prices requires putting workers out of work. Its continuing influence shows how power over the money supply shapes class power.
For decades, central banks have relied on the Phillips curve to justify fighting inflation by putting people out of work. Monetary policy is not apolitical: it is a key battleground in the struggle between workers and capital. (Andrew Harnik / Getty Images)
- Interview by
- David Moscrop
For nearly three-quarters of a century, central banks and policymakers have relied on the Phillips curve: the idea that inflation can be kept in check by disciplining worker power and putting restraints on employment levels. In 2026, does that theory, and the depoliticization of monetary policy that accompanies it, still make sense? Perhaps the real question isn’t whether every inflation spike has the same cause and cure, but whether central banks should use higher unemployment as their default tool to stabilize prices at all.
Jacobin’s David Moscrop recently talked with Silas Xuereb, a researcher and policy analyst with Canadians for Tax Fairness and a coauthor of the report The New Robber Barons: A Quarter Century of Wealth Concentration in Canada.
David Moscrop
What is the Phillips curve?
Silas Xuereb
In the simplest terms, the Phillips curve is an idea in economic theory that there’s a trade-off between unemployment and inflation. So, if unemployment is low, that will lead to high inflation. And if we want to get inflation low, we might have to endure some high unemployment.
It was named after a New Zealand economist, Bill Phillips, who wrote a paper back in the 1950s observing a close link between the two variables — between unemployment and wage inflation in the United Kingdom. The work was extended by American economists in the 1960s who observed the same phenomenon: that there’s a close curve relationship between the inflation rate and the rate of unemployment in the United States. And this is what became known as the Phillips curve.
David Moscrop
So, it’s been around for nearly three-quarters of a century. Does the theory still hold in 2026?
Silas Xuereb
It depends on what you mean. In the 1970s in the United States, you had what people call stagflation: high inflation, high unemployment, and stagnant growth. This didn’t fit the theory of the Phillips curve. And so, ever since then, economists have tried to adapt the theory in various ways in order to better explain the data that we’ve subsequently seen.
But in my opinion, and I think from the perspective of a lot of left and post-Keynesian economists, there’s kind of a fallacy here. In some ways, the entire premise of the Phillips curve confuses correlation with causation. An empirical pattern was observed in the data at a certain point in time, but it was extended to inform central bank policy. The idea was that technocrats and the central banks could use the tools of central banking to control inflation and, in doing so, affect unemployment in a direct, one-to-one way. But that direct causal relationship was never really there.
So, is the theory still valid? In some ways, sometimes, there is a relationship between inflation and unemployment, but it’s not universal. It’s not a one-to-one causal relationship.
Monetary Policy Is Political
David Moscrop
How has the theory of the curve been used by economists, policymakers, and politicians since the 1960s?
Silas Xuereb
The most famous implementation of the theory’s logic occurred in what’s known as the Volcker shock. Starting in 1979, Federal Reserve Chair Paul Volcker quickly and significantly increased interest rates in an effort to fight inflation in the United States. He was aware, based on the assumptions of the Phillips curve model, that this could mean increased unemployment. And it did. So, in that instance, the Phillips curve was to some extent correct, in the sense that fighting inflation meant accepting higher unemployment. This had significant class implications. Workers were really hurt. Millions of US workers lost their jobs because of this central bank policy.
The curve has been contested, and the theory behind it has been adapted over the years. A great deal of nuance has been added. But the idea that central banks should use monetary policy to fight inflation and accept the impacts that it has on unemployment has remained. We saw this in Canada in the post-pandemic years: while inflation was rising, the central bank resorted to these same kinds of tools, raising interest rates in an effort to bring it down. This approach is driven by the theory that high inflation is being driven by workers bidding wages up too high — that workers are asking for too much and that’s what causes prices to increase.
But what we know is that, in the post-COVID-19 period, workers’ wages were not what was causing inflation at all. The pandemic created significant shocks to supply chains, while some corporations raised prices to pad their margins, using their market power in the post-pandemic period. That’s really what drove that post-pandemic inflation. So, the conventional tools that the central banks rely on are not going to be as effective in this context because inflation has a variety of different causes at different points in time. It’s not always caused by workers asking for too much. You have to know what is happening at each particular point in time to understand how policy should respond.
David Moscrop
I’ve seen some people argue that one way to address inflation is to raise taxes. If the concern is a bidding up of wages or an increase in the amount of money floating around, using the state and fiscal policy to rebalance through taxation is also a solution. Was that ever a viable response? Is there a reason the policy response is: “We’ve got to lay people off?” Is the standard central bank approach designed to discipline labor rather than rely on the state’s taxation powers?
Silas Xuereb
This question gets at the depoliticization of a lot of policy and at the arbitrary distinction that has been made in capitalist countries between fiscal and monetary policy. We have this notion that monetary policy is the tool for fighting inflation — that governments are incapable of imagining other ways to do so. In reality, monetary and fiscal policy are both very political beasts. Both affect inflation and the distribution of resources; both shape class conflict and class outcomes.
Fiscal policy could also be used to fight inflation. It would depend on how taxes are structured and whom they affect. That’s ultimately a political question. I think a lot of people recognize that fiscal policy is political, but we don’t often recognize that monetary policy is also political and also has significant distributional consequences.
The Labor Power Curve
David Moscrop
Who benefits from the failure to make that connection and that distinction? Is it a conscious decision by political and economic elites to essentially pretend something is technocratic and administrative — or even scientific — and not political?
Silas Xuereb
The people who benefit from depoliticization are those who have the most access and influence over the levers of power. So, in a capitalist system where very wealthy people and corporations control investment and have a lot of influence over government — and are disproportionately politicians as well — those people are going to benefit from being able to take some decisions out of the democratic realm. That’s essentially what depoliticizing central banking is. It’s saying, “No, it’s not going to be a democratic choice. We don’t get to vote on what this decision is going to be. We’re just going to implement it because we know what’s best or that conventional theory is what’s best.”
Looking at the data, some people argue that the Phillips curve is no longer as strong, empirically, as an explanation of the relationship between unemployment and inflation. I think the reason for this is political, a matter of class power. Workers and the labor movement don’t have as much bargaining power as they did in the 1950s and ’60s when we saw a closer relationship. So even when unemployment is low like right now, workers are less able to bargain for the wage increases they won in the 1950s and ’60s.
We need to look at all of these concepts through the lens of class and asymmetric power. These are political questions. In a purely empirical sense, the Phillips curve is not as strong a relationship as it once was. But that’s not to say that there’s no relationship. Again, when the Bank of Canada repeatedly raised interest rates in the post-pandemic years, unemployment was at a low in 2022 and 2023, then began to rise. And that’s probably not a coincidence. So, there is still some relationship, but we can’t use it as a crutch or as our only explanation for inflation. We have to be able to look at the political processes and the bargaining relationships that are underlying these outcomes.