Labor Market Dysfunction During the Great Recession

Kyle Herkenhoff and Lee Ohanian

No 17313, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper documents the abnormally slow recovery in the labor market during the Great Recession, and analyzes how mortgage modification policies contributed to delayed recovery. By making modifications means-tested by reducing mortgage payments based on a borrower's current income, these programs change the incentive for households to relocate from a relatively poor labor market to a better labor market. We find that modifications raise the unemployment rate by about 0.5 percentage points, and reduce output by about 1 percent, reflecting both lower employment and lower productivity, which is the result of individuals losing skills as unemployment duration is longer.

JEL-codes: E0 J0 (search for similar items in EconPapers)
Date: 2011-08
New Economics Papers: this item is included in nep-lab and nep-mac
Note: EFG LS
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Citations: View citations in EconPapers (31)

Published as “Labor Market Dysfunction during the Great Recession,” with Lee E. Ohanian (UCLA), Cato Papers on Public Policy, edited by Jeffrey Miron, Volume 1, 2011.

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