DP17376 Temporary Layoffs, Loss-of-Recall, and Cyclical Unemployment Dynamics

Author(s): Mark Gertler, Christopher Huckfeldt, Antonella Trigari
Publication Date: June 2022
Keyword(s): business cycles, Loss-of-Recall, Recalls, temporary layoffs, unemployment
JEL(s):
Programme Areas: Labour Economics, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17376

We revisit the role of temporary layoffs in the business cycle. While many have emphasized a stabilizing effect due to recall hiring, we quantify from the data an important countercyclical destabilizing effect due to "loss-of-recall", whereby workers in temporary-layoff unemployment lose their job permanently. We develop a quantitative model allowing for endogenous flows of workers across employment and both temporary-layoff and jobless unemployment. The model captures both pre- and post-pandemic unemployment dynamics, including the recessionary role of loss-of-recall. We use our structural model to show that the Paycheck Protection program generated sizable employment gains, in part by significantly reducing loss-of-recall.