An optimal control model of employment dynamics

In this paper it. is shown that Pontryagin's maximum principle can be used to set up an economic optimal control dynamic system which is composed of a pair of differential equations for employment and labour to investigate the long-run dynamic behaviour of capital and employment, the cyclical fluctuations of employment, and the producers' optimal employment policy that can be characterized by the dual meanings of the Pontryagin multiplier. One equation implies that money is not neutral because it has positive impact on employment while another equation implies that unemployment and inflation may happen simultaneously, as we have experienced in recent years.