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Mass Layoffs and Unemployment

  • Andrew Caplin
  • John Leahy

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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File URL: http://www.nber.org/papers/w4766.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4766.

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Date of creation: Jun 1994
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Publication status: published as Caplin, Andrew and John Leahy. "Mass Layoffs And Unemployment," Journal of Monetary Economics, 2000, v46(1,Aug), 121-142.
Handle: RePEc:nbr:nberwo:4766
Note: EFG
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  13. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 893-928, October.
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  18. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
  19. Hall, Robert E., 1979. "A theory of the natural unemployment rate and the duration of employment," Journal of Monetary Economics, Elsevier, vol. 5(2), pages 153-169, April.
  20. Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
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