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Stability, Bifurcations And Chaos In Unemployment Non-Linear Dynamics

Author

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  • Pagliari Carmen

    (University of Chieti-Pescara (Italy), Dep. SEQFE, Chieti-Pescara (Italy))

  • Mattoscio Nicola

    (University of Chieti-Pescara (Italy), Dep. SEQFE, Chieti-Pescara (Italy))

  • Odoardi Iacopo

    (University of Chieti-Pescara (Italy), Dep. SEQFE, Chieti-Pescara (Italy))

  • Tenerelli Fabiana

    (University of Chieti-Pescara (Italy), Dep. SEQFE, Chieti-Pescara (Italy))

Abstract

The traditional analysis of unemployment in relation to real output dynamics is based on some empirical evidences deducted from Okun's studies. In particular the so called Okun's Law is expressed in a linear mathematical formulation, which cannot explain the fluctuation of the variables involved. Linearity is an heavy limit for macroeconomic analysis and especially for every economic growth study which would consider the unemployment rate among the endogenous variables. This paper deals with an introductive study about the role of non-linearity in the investigation of unemployment dynamics. The main idea is the existence of a non-linear relation between the unemployment rate and the gap of GDP growth rate from its trend. The macroeconomic motivation of this idea moves from the consideration of two concatenate effects caused by a variation of the unemployment rate on the real output growth rate. These two effects are concatenate because there is a first effect that generates a secondary one on the same variable. When the unemployment rate changes, the first effect is the variation in the level of production in consequence of the variation in the level of such an important factor as labour force; the secondary effect is a consecutive variation in the level of production caused by the variation in the aggregate demand in consequence of the change of the individual disposal income originated by the previous variation of production itself. In this paper the analysis of unemployment dynamics is carried out by the use of the logistic map and the conditions for the existence of bifurcations (cycles) are determined. The study also allows to find the range of variability of some characteristic parameters that might be avoided for not having an absolute unpredictability of unemployment dynamics (deterministic chaos): unpredictability is equivalent to uncontrollability because of the total absence of information about the future value of the variable to be controlled.

Suggested Citation

  • Pagliari Carmen & Mattoscio Nicola & Odoardi Iacopo & Tenerelli Fabiana, 2013. "Stability, Bifurcations And Chaos In Unemployment Non-Linear Dynamics," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 736-745, July.
    • Handle: RePEc:ora:journl:v:1:y:2013:i:1:p:736-745
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    References listed on IDEAS

    as
    1. Prachowny, Martin F J, 1993. "Okun's Law: Theoretical Foundations and Revised Estimates," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 331-336, May.
    2. Gary Smith, 1974. "Okun's Law Revisited," Cowles Foundation Discussion Papers 380, Cowles Foundation for Research in Economics, Yale University.
    3. Kaufman, Roger T., 1988. "An international comparison of Okun's laws," Journal of Comparative Economics, Elsevier, vol. 12(2), pages 182-203, June.
    4. Moosa, Imad A., 1997. "A Cross-Country Comparison of Okun's Coefficient," Journal of Comparative Economics, Elsevier, vol. 24(3), pages 335-356, June.
    5. Weber, Christian E, 1995. "Cyclical Output, Cyclical Unemployment, and Okun's Coefficient: A New Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 433-445, Oct.-Dec..
    6. Paramsothy Silvapulle & Imad Moosa & Mervyn Silvapulle, 2004. "Asymmetry in Okun's law," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 353-374, May.
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    More about this item

    Keywords

    Unemployment; Economic growth; Logistic map;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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