A Phillips Curve for the Poor: The Development of the Sawtooth Wages Model of Inflation

Abstract

This paper aims to contribute to the literature on the intellectual history of the economics discipline by delving into the history of the the sawtooth wages model, namely: the behavior of periodically-adjusted fixed nominal wages under persistent inflationary conditions. Ranging from the immediate post-War years to the end of the 1960s, our narrative reveals that, prior to Nicholas Kaldor’s statement of the sawtooth model of real wages, other contributions sprung from various traditions. To this effect, we underscore this model’s ancestor in the Operations Research research program and its the early neoclassical version by Bent Hansen (1951). Later analogous representations by Celso Furtado and Nicholas Georgescu-Roegen maintain the model’s legacy until it is fully rehabilitated as workhorse for theoretical and policy analysis, in the 1980s, as the inertial inflation hypothesis gains terrain in the second round of the monetarist-structuralist debate on economic stabilization in Latin America.