The assumption that wages change more slowly than prices implies that the

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The Phillips Curve illustrates the inverse relationship between the rate of inflation (which affects prices) and the rate of unemployment, implying that as prices rise (inflation increases), unemployment tends to decrease, and vice versa. The assumption that wages (a component of costs for employers) adjust more slowly than prices suggests that in the short run, firms can increase profits by producing more (hiring more workers) as prices rise, leading to lower unemployment at higher levels of inflation. This dynamic is what gives the Phillips Curve its negative slope, as it shows that higher inflation can coexist with lower unemployment, at least in the short term.

The Assumption That Wages Change More Slowly Than Prices Implies