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Unemployment matters: Improved measures of labor market distress in mortgage default analysis

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  • Niu, Yi
  • Ding, Chengri

Abstract

An outstanding feature in cities is the spatial relationship between housing and labor markets. The spatial relationship occurs because a worker's workplace is spatially separated from his/her residence. This separation imposes a geographic barrier to better understanding the interactions between housing and labor markets, especially at a micro level. Overlooking this spatial interdependency of workplace and residential locations in the existing empirical studies may explain their inconclusive or mixed results for job loss effect on foreclosure. Our paper develops a job loss vulnerability index to overcome this geographic barrier by using pair-wise home-work commute data between census tracts. After controlling for the endogeneity and measurement error problems, we find that job loss plays an important role in foreclosure decisions, particularly with rising negative equity. More specifically, estimated results suggest that when house prices drop by 10%, 30% and 50%, doubling job loss would increase foreclosure rate by about 15%–25%, 40%–60%, and 60%–100%, respectively. Estimate results are consistent and robust with different data, different estimators, and different measures of variables.

Suggested Citation

  • Niu, Yi & Ding, Chengri, 2015. "Unemployment matters: Improved measures of labor market distress in mortgage default analysis," Regional Science and Urban Economics, Elsevier, vol. 52(C), pages 27-38.
    • Handle: RePEc:eee:regeco:v:52:y:2015:i:c:p:27-38
    DOI: 10.1016/j.regsciurbeco.2015.02.004
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    Cited by:

    1. Shai Bernstein & Timothy McQuade & Richard R. Townsend, 2017. "Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers During the Great Recession," NBER Working Papers 24011, National Bureau of Economic Research, Inc.
    2. Meekes, Jordy & Hassink, Wolter H.J., 2019. "The role of the housing market in workers′ resilience to job displacement after firm bankruptcy," Journal of Urban Economics, Elsevier, vol. 109(C), pages 41-65.
    3. J. Meekes & W.H.J. Hassink, 2016. "The role of the housing market in workers’ resilience to job displacement after firm bankruptcy," Working Papers 16-10, Utrecht School of Economics.
    4. Meekes, Jordy & Hassink, Wolter, 2017. "The Role of the Housing Market in Workers' Resilience to Job Displacement after Firm Bankruptcy," IZA Discussion Papers 10894, Institute of Labor Economics (IZA).
    5. Stephanie Moulton & Yung Chun & Stephanie Casey Pierce & Roberto Quercia & Sarah Riley & Holly Holtzen, 2022. "Does Temporary Mortgage Assistance for Unemployed Homeowners Reduce Longer‐Term Mortgage Default? An Analysis of the Hardest Hit Fund Program," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 41(2), pages 515-551, March.

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    More about this item

    Keywords

    Job-housing separation; Foreclosure; Job loss; “Double trigger” theory;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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