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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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  1. repec:oup:restud:v:57:y:1990:i:2:p:279-98 is not listed on IDEAS
  2. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
  3. Rafael Rob, 1991. "Learning and Capacity Expansion under Demand Uncertainty," Review of Economic Studies, Oxford University Press, vol. 58(4), pages 655-675.
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  8. Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
  9. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  10. repec:oup:restud:v:60:y:1993:i:4:p:777-94 is not listed on IDEAS
  11. Robert E. Hall, 1978. "A Theory of the Natural Unemployment Rate and the Duration of Employment," NBER Working Papers 0251, National Bureau of Economic Research, Inc.
  12. Mortensen, Dale T. & Vishwanath, Tara, 1994. "Personal contacts and earnings : It is who you know!," Labour Economics, Elsevier, vol. 1(2), pages 187-201, March.
  13. Andrew Atkeson & Patrick J. Kehoe, 1993. "Industry evolution and transition: the role of information capital," Staff Report 162, Federal Reserve Bank of Minneapolis.
  14. Caplin, Andrew & Leahy, John, 1994. "Business as Usual, Market Crashes, and Wisdom after the Fact," American Economic Review, American Economic Association, vol. 84(3), pages 548-65, June.
  15. Andrew Caplin & John Leahy, 1994. "Mass Layoffs and Unemployment," NBER Working Papers 4766, National Bureau of Economic Research, Inc.
  16. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  17. Peter Howitt, 1988. "Business Cycles With Costly Search and Recruiting," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 147-165.
  18. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-18, December.
  19. Steve J. Davis & John Haltiwanger, 1991. "Gross Job Creation, Gross Job Destruction and Employment Reallocation," NBER Working Papers 3728, National Bureau of Economic Research, Inc.
  20. 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.
  21. Andrew Caplin & John Leahy, 1993. "Sectoral Shocks, Learning, and Aggregate Fluctuations," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 777-794.
  22. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  23. Caplin, A. & Leahy, J., 1993. "Miracle on Sixth Avenue: Information Externalities and Search," Harvard Institute of Economic Research Working Papers 1665, Harvard - Institute of Economic Research.
  24. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
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  26. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
  27. Jovanovic, Boyan, 1987. "Work, Rest, and Search: Unemployment, Turnover, and the Cycle," Journal of Labor Economics, University of Chicago Press, vol. 5(2), pages 131-48, April.
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