Labor Market Dysfunction During the Great Recession

44 Pages Posted: 29 Aug 2011 Last revised: 23 Apr 2023

See all articles by Kyle Herkenhoff

Kyle Herkenhoff

University of Minnesota - Minneapolis

Lee E. Ohanian

University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 2011

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.

Suggested Citation

Herkenhoff, Kyle and Ohanian, Lee E., Labor Market Dysfunction During the Great Recession (August 2011). NBER Working Paper No. w17313, Available at SSRN: https://ssrn.com/abstract=1918643

Kyle Herkenhoff (Contact Author)

University of Minnesota - Minneapolis ( email )

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308 Harvard Street SE
Minneapolis, MN 55455
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Lee E. Ohanian

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
8283 Bunch Hall
Los Angeles, CA 90095-1477
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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