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Mass Layoffs and Unemployment

Caplin, Andrew; Leahy, John

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.



More About This Work

Academic Units
Department of Economics, Columbia University
Department of Economics Discussion Papers, 679
Published Here
February 28, 2011


December 1993.

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