Japan can help us better understand one of the biggest puzzles facing the US economy

pulse

June 30, 2017 1:56 PM

Like the US, Japan faces a collapsed relationship between unemployment and inflation.

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A hotly debated topic on the US economy is the collapsed relationship between unemployment and inflation.

The traditional Phillips curve purports that when unemployment falls, inflation should rise, since more workers with jobs will increase demand in a stronger economy and that should lift prices.

But the US unemployment is at a 16-year low, and inflation is going nowhere.

Larry Hatheway, the chief economist at GAM, an asset manager with about $130 billion, looks to Japan as another case study. "I

Now, it's worth noting that economists actually can't agree on whether the Phillips curve has also collapsed in the US. Hatheway had a few ideas about why.

"The stability of inflation may have to do with the stability of long-term inflation expectations," Hatheway said. One--year inflation expectations as measured by the University of Michigan's consumer confidence survey have steadily fallen since the financial crisis.

Some workers still harbor insecurities about the labor market even nearly a decade after the financial crisis. "W

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