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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Kyle F. Herkenhoff

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Working Papers

August 2011Labor Market Dysfunction During the Great Recession
with Lee E. Ohanian: w17313
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.

Published: “Labor Market Dysfunction during the Great Recession,” with Lee E. Ohanian (UCLA), Cato Papers on Public Policy, edited by Jeffrey Miron, Volume 1, 2011.

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