For each wage adjustment episode in a country, the data sample starts at year T0 (the peak year) and it ends when a new peak is detected (at year T0 new – 1). We apply this only if the cumulative real wage gap has been closed before reaching the new peak. If the cumulative wage gap has not been closed, then we continue to consider the new peak as part of the same adjustment episode. A wage adjustment episode within a larger wage adjustment episode is not considered. This approach prevents data overlapping and it secures research consistency and integrity. In the analysed period, there were three historical episodes of wage adjustments. Data shows that the cumulative real wage gap was closed in all countries which experienced the first wage adjustment episode, with the exception of two countries (Japan and Korea). In the case of the second wage adjustment episode, the cumulative real wage gap has not yet been closed, with the exception of other two countries (Mexico and Latvia). These latter two countries entered a new wage adjustment episode, the third one. For simplicity reasons, the wage adjustment episodes are numbered with reference to the time periods and not to the country-specific episodes. We considered as the first wage adjustment 5  episode any episode which started in the last decade of last century (1990-1999) and the second wage adjustment episode any episode which started after the year 2000.
Reference wage values, social preferences, jobs’ characteristics, skills’ endowments and even Central Banks’ targets, they all change over time – hence, the impact of cumulative wage gaps on inflation cannot be the same in different time periods. In fact, even Phillips (1958) mentioned that he ignored years in which import prices rise rapidly enough to initiate a wage-price spiral. He stated that his hypothesis that the rate of change of money wage rates can be explained by the level of unemployment is supported except in or immediately after such years. In doing that, he effectively acknowledged the non-stationarity of his curve. He referred to those years as events that occur very rarely except as a result of a war. Our approach embraces these events, except that in modern times it is not war that makes the difference, but recessions; and recessions happen more often than wars. We try to explain what happens during and after recessions – which is exactly what is omitted by the original Phillips curve. Wages, as the most important source of income for most households around the globe, stand at the basis of any consumption theory. The main problem with the prevailing consumption theories (Keynes’ consumption function (1936), Modigliani’s life-cycle hypothesis (1966) and 2  Friedman’s permanent income hypothesis (1957)) is their long-term approach. This puts them at odds with our rather short and medium-term perspective on inflation, especially in times of crisis.