3.  w = a + q - b U + pe p=w-q p = a - b U + pe  w = rate of increase in nominal labor compensation p = inflation pe = expected inflation q = trend productivity growth q*= moving average of trend productivity growth U = unemployment rate Equation 1 is a wage-price specification of the Phillips curve.
The rate of increase in nominal labor compensation (w) depends on the rate of unemployment (U) and expected inflation (pe). The price level is set as a markup over standardized productivity (the level of productivity adjusted for cyclical effects).