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Mass layoffs and unemployment

  • Caplin, Andrew
  • Leahy, John

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.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 46 (2000)
Issue (Month): 1 (August)
Pages: 121-142

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Handle: RePEc:eee:moneco:v:46:y:2000:i:1:p:121-142
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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