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Labor Market Dysfunction During the Great Recession

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  • Kyle F. Herkenhoff
  • Lee E. Ohanian

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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17313.

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Date of creation: Aug 2011
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Publication status: 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.
Handle: RePEc:nbr:nberwo:17313

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  1. Jacob Mincer, 1991. "Human Capital, Technology, and the Wage Structure: What Do Time Series Show?," NBER Working Papers 3581, National Bureau of Economic Research, Inc.
  2. Marcelo Veracierto & Jonas Fisher & Morris Davis, 2012. "The Role of Housing in Labor Reallocation," 2012 Meeting Papers, Society for Economic Dynamics 805, Society for Economic Dynamics.
  3. Oswald Andrew J., 1996. "A Conjecture on the Explanation for High Unemployment in the Industrialized Nations : Part I," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 475, University of Warwick, Department of Economics.
  4. John Kennan & James R. Walker, 2011. "The Effect of Expected Income on Individual Migration Decisions," Econometrica, Econometric Society, Econometric Society, vol. 79(1), pages 211-251, 01.
  5. Satyajit Chatterjee & Burcu Eyigungor, 2009. "Foreclosures and house price dynamics: a quantitative analysis of the mortgage crisis and the foreclosure prevention policy," Working Papers 09-22, Federal Reserve Bank of Philadelphia.
  6. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2008. "Housing Busts and Household Mobility," NBER Working Papers 14310, National Bureau of Economic Research, Inc.
  7. Casey B. Mulligan, 2010. "Aggregate Implications of Labor Market Distortions: The Recession of 2008-9 and Beyond," NBER Working Papers 15681, National Bureau of Economic Research, Inc.
  8. Sam Schulhofer-Wohl, 2011. "Negative Equity Does Not Reduce Homeowners' Mobility," NBER Working Papers 16701, National Bureau of Economic Research, Inc.
  9. Neil Bania & Laura Leete, 2009. "Monthly household income volatility in the U.S., 1991/92 vs. 2002/03," Economics Bulletin, AccessEcon, vol. 29(3), pages 2100-2112.
  10. Kristopher Gerardi & Wenli Li, 2010. "Mortgage foreclosure prevention efforts," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta.
  11. Manuel Adelino & Kristopher Gerardi & Paul S. Willen, 2009. "Why Don't Lenders Renegotiate More Home Mortgages? Redefaults, Self-Cures and Securitization," NBER Working Papers 15159, National Bureau of Economic Research, Inc.
  12. Andrew Haughwout & Ebiere Okah & Joseph Tracy, 2009. "Second chances: subprime mortgage modification and re-default," Staff Reports, Federal Reserve Bank of New York 417, Federal Reserve Bank of New York.
  13. Hernan Winkler, 2011. "The Effect of Homeownership on Geographic Mobility and Labor Market Outcomes," 2011 Meeting Papers 196, Society for Economic Dynamics.
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Cited by:
  1. Ohanian, Lee E. & Raffo, Andrea, 2012. "Aggregate hours worked in OECD countries: New measurement and implications for business cycles," Journal of Monetary Economics, Elsevier, Elsevier, vol. 59(1), pages 40-56.
  2. Casey B. Mulligan, 2011. "The Expanding Social Safety Net," NBER Working Papers 17654, National Bureau of Economic Research, Inc.
  3. Robert G. Valletta, 2012. "House lock and structural unemployment," Working Paper Series, Federal Reserve Bank of San Francisco 2012-25, Federal Reserve Bank of San Francisco.
  4. Edward P. Lazear & James R. Spletzer, 2012. "The United States Labor Market: Status Quo or A New Normal?," NBER Working Papers 18386, National Bureau of Economic Research, Inc.
  5. Casey B. Mulligan, 2012. "Recent Marginal Labor Income Tax Rate Changes by Skill and Marital Status," NBER Chapters, in: Tax Policy and the Economy, Volume 27, pages 69-100 National Bureau of Economic Research, Inc.
  6. Valletta, Robert G., 2013. "House lock and structural unemployment," Labour Economics, Elsevier, Elsevier, vol. 25(C), pages 86-97.
  7. Valletta, Robert G., 2012. "House Lock and Structural Unemployment," IZA Discussion Papers 7002, Institute for the Study of Labor (IZA).
  8. Kyle F. Herkenhoff, 2012. "Informal unemployment insurance and labor market dynamics," Working Papers, Federal Reserve Bank of St. Louis 2012-057, Federal Reserve Bank of St. Louis.
  9. Edward P. Lazear & James R. Spletzer, 2012. "The United States Labor Market: Status Quo or A New Normal?," Working Papers, Center for Economic Studies, U.S. Census Bureau 12-28, Center for Economic Studies, U.S. Census Bureau.
  10. Casey B. Mulligan, 2012. "Do Welfare Policies Matter for Labor Market Aggregates? Quantifying Safety Net Work Incentives since 2007," NBER Working Papers 18088, National Bureau of Economic Research, Inc.
  11. Adelino, Manuel & Gerardi, Kristopher & Willen, Paul S., 2013. "Why don't Lenders renegotiate more home mortgages? Redefaults, self-cures and securitization," Journal of Monetary Economics, Elsevier, Elsevier, vol. 60(7), pages 835-853.
  12. Edward P. Lazear & James R. Spletzer, 2012. "The United States labor market: status quo or a new normal?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 405-451.

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