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- Title
ENDOGENOUS LABOR MARKET CYCLES.
- Authors
Li, Yunan; Wang, Cheng
- Abstract
We offer a new way of thinking about labor market fluctuations. In a perfectly stationary physical environment of the labor market, moral hazard and competition in long‐term contracting generate cycles in market tightness, which may induce job creation and destruction, and two‐period and longer cycles in wages and employment. Long‐term contracts use termination as an incentive device. Underlying the cycles is an intertemporal negative externality. In prescribing a larger (smaller) probability of termination, each current period long‐term contract puts pressure on all next period long‐term contracts to prescribe a smaller (larger) probability of termination, by affecting the tightness of the market for long‐term contracts in the next period.
- Subjects
MARKET tightness; DISCHARGE of contracts; LABOR market; MORAL hazard; JOB creation
- Publication
International Economic Review, 2022, Vol 63, Issue 2, p849
- ISSN
0020-6598
- Publication type
Article
- DOI
10.1111/iere.12553