Wages, Unemployment and Expectations in Developing Countries: The Labour Market and the Augmented Phillips Curve for Chile

Conventional and alternative versions of the augmented Phillips curve are tested for Chile for the period 1974–1979. All regressors are significant. The alternative formulation and rationally formed expectations provide the best fit, with the minimum wage indexation and conventional curve results suggesting the presence of non‐wage inflationary pressures in addition to wage ones. Forecasting is made possible by deriving the relationship between real wages and the unemployment rate, and combinations of moderate‐to‐substantial real wage increases and unemployment reductions were feasible, over the medium term, under the policies and economic conditions prevailing up to mid‐1979.