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

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 p...

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Bibliographic Details
Published in:American economic journal. Applied economics 2018-07, Vol.10 (3), p.101-127
Main Authors: Borgschulte, Mark, Martorell, Paco
Format: Article
Language:English
Subjects:
Armed forces
Earnings
Economic conditions
Economic models
Labor market
Servicemen
Unemployment
Workers
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Summary: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 nonwork 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.
ISSN:1945-7782
1945-7790
DOI:10.1257/app.20160257