Paying to Avoid Recession: Using Reenlistment to Estimate the Cost of Unemployment

Mark Borgschulte and Paco Martorell
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Paco Martorell: University of California, Davis

No 9680, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper provides revealed-preference estimates of the monetary value of avoiding job search in a high-unemployment labor market by examining the behavior of military servicemembers deciding between reenlisting and exiting the military. We find that servicemembers would sacrifice 1.5-2% in earnings in exchange for avoiding a one percentage point increase in the home-state unemployment rate. Comparing these estimates to realized losses in post-service civilian earnings resulting from exiting the military during times of high unemployment suggests that mitigating factors (e.g., leisure, private and public transfers) offset less than one-third of the earnings losses caused by entering a weak labor market.

Keywords: labor market entry; welfare cost of business cycles; military reenlistment (search for similar items in EconPapers)
JEL-codes: J30 J60 J65 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2016-01
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (10)

Published - published in: American Economic Journal: Applied Economics, 2018, 10 (3), 101-127

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Journal Article: Paying to Avoid Recession: Using Reenlistment to Estimate the Cost of Unemployment (2018)
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