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

53 Pages Posted: 1 Feb 2016 Last revised: 13 Sep 2022

See all articles by Mark Borgschulte

Mark Borgschulte

University of Illinois at Urbana-Champaign - Department of Economics

Paco Martorell

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.

Keywords: labor market entry, welfare cost of business cycles, military reenlistment

JEL Classification: J30, J60, J65

Suggested Citation

Borgschulte, Mark and Martorell, Paco, Paying to Avoid Recession: Using Reenlistment to Estimate the Cost of Unemployment. IZA Discussion Paper No. 9680, Available at SSRN: https://ssrn.com/abstract=2725041

Mark Borgschulte (Contact Author)

University of Illinois at Urbana-Champaign - Department of Economics ( email )

601 E John St
Champaign, IL Champaign 61820
United States

Paco Martorell

University of California, Davis

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Apt 153
Davis, CA 95616
United States

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