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

Author

Listed:
  • Borgschulte, Mark

    (University of Illinois at Urbana-Champaign)

  • Martorell, Paco

    (University of California, Davis)

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.

Suggested Citation

  • Borgschulte, Mark & Martorell, Paco, 2016. "Paying to Avoid Recession: Using Reenlistment to Estimate the Cost of Unemployment," IZA Discussion Papers 9680, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9680
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    References listed on IDEAS

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    Cited by:

    1. Jesse Rothstein, 2020. "The Lost Generation? Labor Market Outcomes for Post Great Recession Entrants," NBER Working Papers 27516, National Bureau of Economic Research, Inc.
    2. Michael S. Kofoed & Wyatt J. Frasier, 2019. "[Job] Locked and [Un]loaded: The Effect of the Affordable Care Act Dependency Mandate on Reenlistment in the U.S. Army," Upjohn Working Papers and Journal Articles 19-300, W.E. Upjohn Institute for Employment Research.
    3. Brian Duncan & Hani Mansour & Bryson Rintala, 2019. "Weighing The Military Option: The Effects Of Wartime Conditions On Investments In Human Capital," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 264-282, January.
    4. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2018. "A Macroeconomic Approach to Optimal Unemployment Insurance: Applications," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 182-216, May.
    5. Pascal Michaillat & Emmanuel Saez, 2019. "Beveridgean Unemployment Gap," Papers 1911.05271, arXiv.org, revised Dec 2020.
    6. Alexandre Mas & Amanda Pallais, 2019. "Labor Supply and the Value of Non-work Time: Experimental Estimates from the Field," American Economic Review: Insights, American Economic Association, vol. 1(1), pages 111-126, June.

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    More about this item

    Keywords

    welfare cost of business cycles; labor market entry; military reenlistment;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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