This paper studies the role of long-term unemployment in the determination of prices and wages.
Labor market theories such as insider-outsider models predict that this type of unemployed are
less relevant in the wage formation process than the newly unemployed. This paper looks for
evidence of this behavior in a set of OECD countries. For this purpose, I propose a new
specification of the Phillips Curve that contains different unemployment lengths in a time-varying
NAIRU setting. This is done by constructing an index of unemployment that assigns different
weights to the unemployed based on the length of their spell. The...