Mass layoffs and unemployment

Andrew Caplin, John Leahy

    Research output: Contribution to journalArticle

    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 exert too little effort in equilibrium. 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 the location of productive jobs. Together these forces imply that in equilibrium the natural rate of unemployment is too high.

    Original languageEnglish (US)
    Pages (from-to)121-142
    Number of pages22
    JournalJournal of Monetary Economics
    Volume46
    Issue number1
    DOIs
    StatePublished - Aug 2000

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    Keywords

    • E24
    • Information externality
    • J64
    • Natural rate of unemployment
    • Search

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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