Working Paper: NBER ID: w17313
Authors: Kyle F. Herkenhoff; Lee E. Ohanian
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.
Keywords: No keywords provided
JEL Codes: E0; J0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Mortgage modifications (G21) | Unemployment rate (J64) |
| Mortgage modifications (G21) | Output (Y10) |
| Mortgage modifications (G21) | Opportunity cost of relocating (R32) |
| Opportunity cost of relocating (R32) | Unemployment rate (J64) |
| Mortgage modifications (G21) | Unemployment duration (J64) |
| Mortgage modifications (G21) | Employment levels (J23) |
| Unemployment duration (J64) | Skills loss (J24) |