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Labor Market Dysfunction During the Great Recession

  • Kyle F. Herkenhoff
  • Lee E. Ohanian

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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File URL: http://www.nber.org/papers/w17313.pdf
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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
Note: EFG LS
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Ferreira, Fernando & Gyourko, Joseph & Tracy, Joseph, 2010. "Housing busts and household mobility," Journal of Urban Economics, Elsevier, vol. 68(1), pages 34-45, July.
  2. 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) 475, University of Warwick, Department of Economics.
  3. Marcelo Veracierto & Jonas Fisher & Morris Davis, 2012. "The Role of Housing in Labor Reallocation," 2012 Meeting Papers 805, Society for Economic Dynamics.
  4. Sam Schulhofer-Wohl, 2010. "Negative equity does not reduce homeowners' mobility," Working Papers 682, Federal Reserve Bank of Minneapolis.
  5. Andrew Haughwout & Ebiere Okah & Joseph Tracy, 2009. "Second chances: subprime mortgage modification and re-default," Staff Reports 417, Federal Reserve Bank of New York.
  6. Kennan,J. & Walker,J.R., 2003. "The effect of expected income on individual migration decisions," Working papers 7, Wisconsin Madison - Social Systems.
  7. Manuel Adelino & Kristopher Gerardi & Paul S. Willen, 2009. "Why don't lenders renegotiate more home mortgages? redefaults, self-cures, and securitization," Working Paper 2009-17, Federal Reserve Bank of Atlanta.
  8. 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.
  9. 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.
  10. Kristopher Gerardi & Wenli Li, 2010. "Mortgage foreclosure prevention efforts," Economic Review, Federal Reserve Bank of Atlanta.
  11. Hernan Winkler, 2011. "The Effect of Homeownership on Geographic Mobility and Labor Market Outcomes," 2011 Meeting Papers 196, Society for Economic Dynamics.
  12. 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.
  13. Chatterjee, Satyajit & Eyigungor, Burcu, 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.
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