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...

In a dynamic model of the labor market with moral hazard, equilibriumlayoff is modeled as termination of an optimal long-term contract. Termination,together with compensation (current and future), is used as an incentive deviceto induce worker efforts. I then use the model to study analytically...