High Home-Ownership Rate Has an Adverse Effect on the Labor Market

Date Published 5/23/2013
Author Marja Hoek-Smit

A study by David Blanchflower and Andrew Oswald explored the hypothesis that high home-ownership may impair the vitality of the labor market. Their findings show that a doubling of the rate of home-ownership in the US state they study is a precursor to a more than doubling of the unemployment rate of that state in the long-run, i.e. elasticity exceeds unity. A possible explanation why such pattern has attracted so little notice and documentation is long time lags. High levels of home-ownership do not have immediate effects on the labor market within a year; they tend to do so, based on the study’s findings, the following year and can take up to five years to become evident.

Blanchflower and Oswald found evidence that the high home-ownership rate in this US state is associated with:

1.Lower levels of labor mobility; where doubling of the home-ownership rate is associated with cutting the mobility rate in half.

2.Greater commuting times; consistent with the view that the cost of traveling to work is negatively related to the rate of employment as it raises the opportunity cost of a job.

3.Fewer new firms and establishments; conceivably due to zoning and NIMBY effects thus a lower degree of tolerance for new businesses.

The results do not suggest that owners themselves are disproportionately unemployed. They suggest, instead, that home-ownership can produce negative ‘externalities’ on employment. Blanchflower and Oswald state: “Our paper makes a simple statistical contribution and discusses possible mechanisms” and that the results “seem relevant to, and should perhaps be seen as worrying for, a wide range of policy-makers and researchers.”

Link to paper: http://hofinet.org/documents/doc.aspx?id=1871

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