Beyond the Phillips Curve Orthodoxy: Reassessing the Wage–Inflation Trade-Off Under Nonlinear Labor Market Segmentation in Post-Pandemic Economies

Abstract

The canonical Phillips Curve framework has long anchored monetary policy design across advanced and emerging economies; however, its empirical reliability has deteriorated substantially in the post-pandemic macroeconomic environment. This study critically re-examines the wage–inflation nexus by incorporating nonlinear labor market segmentation dynamics, exploiting a panel dataset of 38 OECD economies spanning 2010–2024. Employing threshold vector autoregression (TVAR) models augmented with time-varying parameter estimation, we demonstrate that the conventional inverse relationship between unemployment and wage inflation becomes structurally unstable when labor markets exhibit dual-sector segmentation exceeding critical heterogeneity thresholds. Our findings indicate that sectoral polarization, gig-economy proliferation, and skill-biased technological displacement jointly attenuate the trade-off's predictive validity. These results carry significant implications for central bank forward guidance and fiscal-monetary policy coordination frameworks.