Presentation on theme: "The danger of high home ownership: Greater unemployment Andrew Oswald (Warwick and CAGE) Joint work with Danny Blanchflower."— Presentation transcript:
The danger of high home ownership: Greater unemployment Andrew Oswald (Warwick and CAGE) Joint work with Danny Blanchflower
The background since WW2
OECD unemployment was 3% and is now 10%+
Standard explanations: trade unions became too powerful unemployment benefits too generous labour markets too inflexible.
We want to consider something different
We want to consider something different – that economists and policy- makers need to focus on the way the housing market works.
In 1950, most British citizens were private renters.
Often-forgotten facts In 1950, most British citizens were private renters. Today, nearly 70% of Swiss people are private renters.
The natural rate of unemployment... is the level that would be ground out by the Walrasian... equations, provided there is embedded in them the actual... characteristics of the labour and commodity markets,... market imperfections, the costs of gathering information, the costs of mobility, and so on.
... with some simple correlations
Euro area alone
Over half a century in the US
Long time-differences in US state data
Long time-differences for Swiss cantons
Is there any quasi-experimental evidence?
Yes. Recently released in Finland. Home-ownership and the Labour Market: Evidence from Rental Housing Market Deregulation Jani-Petri Laamanen
In our own work
Movements in the unemployment rate in state j are explained in large part by movements in the home-ownership rate in state j some years earlier. The elasticity is huge. It exceeds 1.
Is this pattern robust across different time periods and different parts of the USA?
Yes, if we split the data at year 2001.
Is this pattern robust across different time periods and different parts of the USA? Yes, if we split the data at year Yes, if we split the data into different areas of the USA.
What might be going on?
Home ownership leads to: Lower geographical mobility Longer commuting times Fewer new businesses
Why? It is not that being a home owner is making me unemployed.
It is hard to see how this could be in some sense Keynesian or all about aggregate demand.
Idea 1 High home-ownership encourages greater commuting, and that increases congestion costs for other workers and their employers.
Idea 2 High home-ownership reduces mobility, and that has deleterious knowledge-flow externalities on everyones productivity.
Idea 3 High home-ownership tends to block new business development (zoning and NIMBY pressures).
The main finding There is a profound link between high home ownership and later high unemployment.