Working Paper: NBER ID: w4766
Authors: Andrew Caplin; John Leahy
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 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.
Keywords: Mass Layoffs; Unemployment; Job Search; Information Externalities
JEL Codes: J63; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mass layoffs (J63) | job search behavior (J68) |
| information externality (D62) | higher than optimal natural rate of unemployment (J64) |
| free rider problem (H40) | higher than optimal natural rate of unemployment (J64) |
| job search behavior (J68) | higher than optimal natural rate of unemployment (J64) |
| mass layoffs (J63) | information externality (D62) |
| mass layoffs (J63) | free rider problem (H40) |
| learning process (J24) | job search behavior (J68) |