Dynamic response of labor market equilibrium: A joint analysis of output growth and monetary response

This study constructs a theoretical groundwork extending the standard Job search model by incorporating the impact of labor market tightness on long-term growth in order to investigate inter dependencies among job creation, vacancies, and growth in GDP. In contrast with classical approaches, which deploy static or linear parameters, here we formulate labor market evolution as a nonlinear dynamical system of ODEs, accounting for the ongoing and intertwined changes in the numbers of employed and vacant jobs. The integration of labor market dynamics into macroeconomic aggregates in this investigation yields both novel and practically relevant theoretical results, which may assist policymakers in formulating employment and growth-oriented policies for the evolution of the economy.