Mass Layoffs and Unemployment

28 Pages Posted: 26 Jul 2010

See all articles by Andrew Caplin

Andrew Caplin

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

John V. Leahy

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 1994

Abstract

Mass layoffs give rise to groups of unemployed workers who possess similar characteristics and therefore may learn from one another's experience searching for a new job. Two factors lead them to be too selective in the job offers that they accept. The first is an information externality: searchers fail to take into account the value of their experience to others. The second is an incentive to free ride: each worker would like others to experiment and reveal information concerning productive jobs. Together these forces imply that in equilibrium the natural rate of unemployment is too high.

Suggested Citation

Caplin, Andrew and Leahy, John V., Mass Layoffs and Unemployment (June 1994). NBER Working Paper No. w4766, Available at SSRN: https://ssrn.com/abstract=1647515

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John V. Leahy

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