NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Mass Layoffs and Unemployment

Andrew Caplin, John Leahy

NBER Working Paper No. 4766
Issued in June 1994
NBER Program(s):   EFG

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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Published: Caplin, Andrew and John Leahy. "Mass Layoffs And Unemployment," Journal of Monetary Economics, 2000, v46(1,Aug), 121-142.

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