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Neo-classical labour market dynamics and uniform expectations: chaos and the resurrection of the Phillips Curve

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  • Luciano fanti

Abstract

In this paper we develop a simple model of the labour market in the neoclassical framework dating back to Friedman (1968) and Phelps (1968), among others. According to the existing literature wage expectations should be formed in a different way by firms and individuals in order temporary deviations from natural rate of employment to take place in the expectations augmented neoclassical labour market. On the contrary we are capable to show that not only temporary but long term regular fluctuations and chaotic behaviour of wages and employment emerge as a robust finding also when firms and individuals have uniform expectations. This suggests at least two noteworthy considerations: 1) the Walrasian equilibrium dynamics of the expectations augmented neoclassical labour market can cause long term unemployment; 2) a reminiscence of the Phillips curve emerges in a neoclassical labour market context, by providing a new perspective to the long lasting controversial issue of the existence of the Phillips Curve.

Suggested Citation

  • Luciano fanti, 2004. "Neo-classical labour market dynamics and uniform expectations: chaos and the resurrection of the Phillips Curve," Discussion Papers 2004/34, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  • Handle: RePEc:pie:dsedps:2004/34
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    File URL: http://www.ec.unipi.it/documents/Ricerca/papers/2004-34.pdf
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    Cited by:

    1. Luciano Fanti & Luca Gori, 2012. "Endogenous Lifetime in an Overlapping-Generations Small Open Economy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(2), pages 121-152, June.
    2. Lorenzo Corsini & Elisabetta Olivieri, 2008. "Technological Change and the Wage Differential between Skilled and Unskilled Workers: Evidence from Italy," Discussion Papers 2008/73, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    3. Luciano Fanti & Luca Gori, 2009. "Endogenous fertility, endogenous lifetime and economic growth: the role of health and child policies," Discussion Papers 2009/91, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    4. Maurizio Lisciandra, 2007. "The Role of Reciprocating Behaviour in Contract Choice," Discussion Papers 2007/65, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    5. Luciano Fanti & Luca Gori, 2008. "PAYG pensions and economic cycles: exogenous versus endogenous fertility," Discussion Papers 2008/75, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

    More about this item

    Keywords

    neoclassical labour market; wage expectations; Phillips curve; business cycles; chaos;

    JEL classification:

    • J0 - Labor and Demographic Economics - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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