Endogenous Labor Market Cycles

61 Pages Posted: 13 Oct 2018 Last revised: 14 Mar 2019

See all articles by Yunan Li

Yunan Li

City University of Hong Kong (CityUHK)

Cheng Wang

University of Iowa

Date Written: March 12, 2019


This paper shows that in a perfectly stationary physical environment of the labor market, moral hazard and competition in long-term contracts can generate cycles in the tightness of the market, which in turn may induce job creation and destruction, and two periods or much longer cycles in employment and output. We claim that the model may shed light on the unemployment volatility puzzle, which has inspired many discussions in the literature.

Keywords: endogenous cycles, moral hazard, long-term contract, termination

JEL Classification: E32, D86

Suggested Citation

Li, Yunan and Wang, Cheng, Endogenous Labor Market Cycles (March 12, 2019). Available at SSRN: https://ssrn.com/abstract=3251664 or http://dx.doi.org/10.2139/ssrn.3251664

Yunan Li (Contact Author)

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Hong Kong

Cheng Wang

University of Iowa ( email )

341 Schaeffer Hall
Iowa City, IA 52242-1097
United States

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