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Compensation of regional unemployment in housing markets

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  • Wouter Vermeulen
  • J. van Ommeren

Abstract

Why are regional unemployment differentials in Europe so persistent if, as the wage curve literature demonstrates, there is no compensation in labour markets? Why are regional unemployment differentials in Europe so persistent if, as the wage curve literature demonstrates, there is no compensation in labour markets? We hypothesise that workers in high-unemployment regions are compensated in housing markets. Modelling regional unemployment differentials as a consequence of centralised wage bargaining, we show that clearing of land markets may undo the incentive for workers to migrate to low-unemployment regions in general equilibrium. The compensating differentials hypothesis is tested on city-level data for several countries. Controlling for variation in income and amenities, housing is found to be about 3 percent less expensive on average in cities where unemployment is 10 percent up. An analysis of housing demand survey data, which takes account of housing heterogeneity, yields a similar negative relationship. The magnitude of the income effect generated by this compensating differential is consistent with a -0.10 wage curve elasticity. Workers in regions with high unemployment and low per capita income are therefore not necessarily worse off, and regional support programs should take this into account.

Suggested Citation

  • Wouter Vermeulen & J. van Ommeren, 2006. "Compensation of regional unemployment in housing markets," CPB Discussion Paper 57, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:57
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    References listed on IDEAS

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    Cited by:

    1. Wouter Vermeulen, 2006. "Regional disparities in a small country? An analysis of regional unemployment and participation differentials in the Netherlands from 1975 to 2003," CPB Document 113.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Wouter Vermeulen & Jos Van Ommeren, 2009. "Compensation of Regional Unemployment in Housing Markets," Economica, London School of Economics and Political Science, vol. 76(301), pages 71-88, February.
    3. Frank Corvers & Maud Hensen & Dion Bongaerts, 2009. "Delimitation and Coherence of Functional and Administrative Regions," Regional Studies, Taylor & Francis Journals, vol. 43(1), pages 19-31.

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    More about this item

    JEL classification:

    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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