Discrete Dynamics in Nature and Society
Volume 2008 (2008), Article ID 981952, 11 pages
A Simple Nonlinear Dynamic Model for Unemployment: Explaining the Spanish Case
1IPED, University of Texas at El Paso, TX 79968, USA
2Department of Economics, Keynes College, University of Kent, Canterbury CT2 7NP, UK
Received 22 January 2008; Accepted 14 June 2008
Academic Editor: E. Casetti
Copyright © 2008 João Ricardo Faria and Miguel A. León-Ledesma. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Spanish unemployment is characterized by three distinct regimes of low, medium, and
high unemployment and by a fast transition between them. This paper presents a simple nonlinear
dynamic model that is able to explain this behavior with multiple equilibria and jumps describing the
transition between equilibria. The model has only a small number of parameters capturing the
fundamentals of labor markets and macroeconomic and institutional factors. The model is capable
of generating unemployment dynamics that encompass the “unique” natural rate
hypothesis, the structuralist hypothesis, and the hysteresis hypothesis.