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

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.