Mass Layoffs and Unemployment
NBER Working Paper No. 4766
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.
Published: Caplin, Andrew and John Leahy. "Mass Layoffs And Unemployment," Journal of Monetary Economics, 2000, v46(1,Aug), 121-142.
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