Mass Layoffs and Unemployment
Mass layouts 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 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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