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Mass Layoffs and Unemployment

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  • Andrew Caplin
  • John Leahy

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

  • Andrew Caplin & John Leahy, 1994. "Mass Layoffs and Unemployment," NBER Working Papers 4766, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4766
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    Cited by:

    1. Caplin, Andrew & Leahy, John, 2000. "Mass layoffs and unemployment," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 121-142, August.
    2. Katharine G. Abraham & Robert Shimer, 2001. "Changes in Unemployment Duration and Labor Force Attachment," NBER Working Papers 8513, National Bureau of Economic Research, Inc.
    3. Marc Santugini, 2020. "On the consumer problem under an informational externality," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 149-161, April.
    4. Louise Allsopp, 2004. "An Experiment to Investigate the Externalities of Search," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 423-435, December.

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