Time-varying wage Phillips curves in the euro area with a new measure for labor market slack

In recent years, the relationship between wage growth and unemployment gap, known as Phillips curve, has been puzzlingly weak: whereas gap was low, low well. We consider two possible explanations for this ‘low puzzle’: (i) a structural change in labor market slack, (ii) failure of to adequately capture demand conditions. propose new measure slack based on survey among firms asking whether shortage is limiting production. This indicator points hidden not captured by which resolves puzzle. Our estimates curve five biggest euro area countries also suggest that changed over time, but uniformly across countries.