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A New Model of Labor Dynamics: Ultrametrics, Okun's Law, and Transient Dynamics

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  • Masanao Aoki

Abstract

Summary This paper adds a labor sector to the model of output fluctuations of Aoki (2002, Chapt. 8), and Aoki and Yoshikawa (2003) to produce a new model with a labor sector. The concept of ultrametrics is introduced to the labor dynamics of this paper to measure ”distances” between clusters of unemployed workers in different geographical locations, with work experiences, and/or human capitals to reflect differences in probabilities of them being rehired from a pool of unemployed workers. We maintain the assumption of our previous model that marginal product of labor does not equalize instantaneously across sectors of our economy. This model shares the same property with our earlier one that GDP responds to changes in demand patterns among the sectors. In addition, the model of this paper exhibits a relation between unemployment rates and GDP similar to that of the Okuns' law in its business cycle fluctuations. This Okun's coefficient increases as the average GDP increases. Our model also reaches stationary business cycles faster as more demands are put on more productive sectors of the model.
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Suggested Citation

  • Masanao Aoki, 2004. "A New Model of Labor Dynamics: Ultrametrics, Okun's Law, and Transient Dynamics," UCLA Economics Online Papers 293, UCLA Department of Economics.
    • Handle: RePEc:cla:uclaol:293
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    1. Mortensen, Dale T, 1989. " The Persistence and Indeterminancy of Unemployment in Search Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(2), pages 347-370.
    2. Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 819-863.
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    Cited by:

    1. Hawkins, Raymond J. & Aoki, Masanao & Roy Frieden, B., 2010. "Asymmetric information and macroeconomic dynamics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(17), pages 3565-3571.

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