Labor Market Dysfunction During the Great Recession / Kyle F. Herkenhoff, Lee E. Ohanian.

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Herkenhoff, Kyle F

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w17313.Publication details: Cambridge, Mass. National Bureau of Economic Research 2011.Description: 1 online resource: illustrations (black and white)Subject(s):

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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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Previous	nber w17310 Is there a Link Between Foreclosure and Health? /	nber w17311 Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity /	nber w17312 Why didn't Canada have a banking crisis in 2008 (or in 1930, or 1907, or ...)? /	nber w17313 Labor Market Dysfunction During the Great Recession /	nber w17314 How the West 'Invented' Fertility Restriction /	nber w17315 Complex Mortgages /	nber w17316 Vertical Integration and Optimal Reimbursement Policy /	Next

August 2011.

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.