We propose a novel theory of self-fulfilling fluctuations in the labor market. A firm employing an additional worker … generates positive externalities on other firms, because employed workers have more income to spend and have less time to shop … for low prices than unemployed workers. We quantify these shopping externalities and show that they are sufficiently …

We propose a novel theory of self-fulfilling unemployment fluctuations. According to this theory, a firm hiring an …

I compare unemployment expectations from the Michigan Survey of Consumers to VAR forecastable movements in unemployment …. I document three key facts. First, one-half to one-third of the population expects unemployment to rise when it is … falling at the end of a recession even though the VAR predicts the fall in unemployment. Second, more people expect …