Endogenous Labor Market Cycles
61 Pages Posted: 13 Oct 2018 Last revised: 14 Mar 2019
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: Suggested Citation