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

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  • Mark Borgschulte
  • Paco Martorell

Abstract

This paper provides revealed-preference estimates of the monetary value to workers of a lower unemployment rate at the time of job separation. By examining the decision between reenlisting and exiting the military, we find that service members would sacrifice 1.5-2 percent in earnings to avoid a 1 percentage point increase in the home-state unemployment rate during job search. Comparing these quantities to realized earnings losses for those who separate suggests that the value of non-work time and other factors (e.g., private and public transfers) offset less than one-third of the earnings losses caused by exiting the military into a weak labor market.

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  • Mark Borgschulte & Paco Martorell, 2018. "Paying to Avoid Recession: Using Reenlistment to Estimate the Cost of Unemployment," American Economic Journal: Applied Economics, American Economic Association, vol. 10(3), pages 101-127, July.
    • Handle: RePEc:aea:aejapp:v:10:y:2018:i:3:p:101-27
    Note: DOI: 10.1257/app.20160257
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    2. Pascal Michaillat & Emmanuel Saez, 2019. "Beveridgean Unemployment Gap," Papers 1911.05271, arXiv.org, revised Nov 2021.
    3. Asai, Yukiko & Koustas, Dmitri K., 2023. "Temporary work contracts and female labor market outcomes," Journal of Economic Behavior & Organization, Elsevier, vol. 208(C), pages 1-20.
    4. Alexandre Mas & Amanda Pallais, 2019. "Labor Supply and the Value of Non-work Time: Experimental Estimates from the Field," American Economic Review: Insights, American Economic Association, vol. 1(1), pages 111-126, June.
    5. Jesse Rothstein, 2023. "The Lost Generation? Labor Market Outcomes for Post-Great Recession Entrants," Journal of Human Resources, University of Wisconsin Press, vol. 58(5), pages 1452-1479.
    6. Till von Wachter, 2020. "The Persistent Effects of Initial Labor Market Conditions for Young Adults and Their Sources," Journal of Economic Perspectives, American Economic Association, vol. 34(4), pages 168-194, Fall.
    7. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2018. "A Macroeconomic Approach to Optimal Unemployment Insurance: Applications," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 182-216, May.
    8. ASAI Yukiko & Dmitri K. KOUSTAS, 2021. "Temporary Work Contracts and Female Labor Market Outcomes," Discussion papers 21071, Research Institute of Economy, Trade and Industry (RIETI).
    9. Michael S. Kofoed & Wyatt J. Frasier, 2019. "[Job] Locked and [Un]loaded: The Effect of the Affordable Care Act Dependency Mandate on Reenlistment in the U.S. Army," Upjohn Working Papers 19-300, W.E. Upjohn Institute for Employment Research.
    10. Sandra E. Black & Jeffrey T. Denning & Lisa J. Dettling & Sarena Goodman & Lesley J. Turner, 2023. "Taking It to the Limit: Effects of Increased Student Loan Availability on Attainment, Earnings, and Financial Well-Being," American Economic Review, American Economic Association, vol. 113(12), pages 3357-3400, December.
    11. Glaser, Darrell J. & Rahman, Ahmed S., 2023. "Between the dockyard and the deep blue sea—Retention and personnel economics in the Royal Navy," Labour Economics, Elsevier, vol. 84(C).
    12. Osuna-Gomez, Daniel, 2023. "The impact of the COVID-19 pandemic on post-great recession entrants: Evidence from Mexico," Labour Economics, Elsevier, vol. 81(C).
    13. Lucas Finamor, 2022. "Labor market conditions and college graduation: evidence from Brazil," Papers 2201.11047, arXiv.org, revised Mar 2023.
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    15. Pascal Michaillat & Emmanuel Saez, 2022. "u^* = \sqrt{uv}," Papers 2206.13012, arXiv.org, revised Jun 2024.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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