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

Mark Borgschulte, Paco Martorell

Research output: Working paper

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.
Original languageEnglish (US)
Number of pages53
StatePublished - Feb 1 2016

Publication series

NameIZA Discussion Paper
No.9680

Keywords

  • welfare cost of business cycles
  • labor market entry
  • military reenlistment

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