Fairness concerns play an important role in wage formation, with unfair treatment affecting morale and labor productivity. These forces can lead to unemployment and affect the pattern of relative wages and employment. But behavioral evidence shows that perceptions of fairness can be influenced by purely nominal changes in wage rates, which implies that unemployment will be inversely related to inflation, also in the long run; there is no natural rate. Moreover, social norms only persist if they are affirmed by actual behavior while, conversely, outcomes that are well-established will come to be expected and accepted as fair. These endogenous changes in fairness norms can generate employment hysteresis, with the precise implications for economic policy and the relation between unemployment and inflation depending on the details of the model. Models of inflation need modification in developing economies with large amounts of underemployment. Drawing on a structuralist tradition and insights from behavioral economics, the chapter presents a stylized model in which inflation is determined by distributional conflict and cross-sectoral interactions between demand and supply side forces.