Mortgage Modification Programs Raised Unemployment And Lowered GDP

From the abstract to "Labor Market Dysfunction During the Great Recession" by Kyle Herkenhoff and Lee E. Ohanian, University of California, Los Angeles (UCLA) - Department of Economics, August 2011, NBER Working Paper No. w17313:

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 modificationsmeans-tested by reducing mortgage payments based on a borrower's current income, these programschange the incentive for households to relocate from a relatively poor labor market to a better labormarket. We find that modifications raise the unemployment rate by about 0.5 percentage points, andreduce output by about 1 percent, reflecting both lower employment and lower productivity, whichis the result of individuals losing skills as unemployment duration is longer. [Emphasis added]