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The Role of Housing in Labor Reallocation

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  • Marcelo Veracierto

    (Federal Reserve Bank of Chicago)

  • Jonas Fisher

    (Federal Reserve Bank of Chicago)

  • Morris Davis

    (University of Wisconsin-Madison, School)

Abstract

This paper builds a dynamic general equilibrium model of cities and uses it to analyze the role of local housing markets and moving costs in determining the character and extent of labor reallocation in the US economy. Labor reallocation in the model is driven by idiosyncratic city-specific productivity shocks, which we measure using a dataset that we compile using more than 350 U.S. cities for the years 1984 to 2008. Based on this measurement, we find that our model is broadly consistent with the city-level evidence on net and gross population flows, employment, wages and residential investment. We also find that the location-specific nature of housing is more important than moving costs in determining labor reallocation. Absent this quasi-fixity of housing, and under various assumptions governing population flows, population and employment would be much more volatile than observed.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 805.

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Date of creation: 2012
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Handle: RePEc:red:sed012:805

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  1. Davis, Morris & Heathcote, Jonathan, 2005. "The Price and Quantity of Residential Land in the United States," CEPR Discussion Papers 5333, C.E.P.R. Discussion Papers.
  2. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2010. "Why Has House Price Dispersion Gone Up?," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1567-1606.
  3. Christian Broda & David Weinstein, 2004. "Globalization and the gains from variety," Staff Reports 180, Federal Reserve Bank of New York.
  4. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
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Cited by:
  1. Greg Kaplan & Sam Schulhofer-Wohl, 2012. "Understanding the long-run decline in interstate migration," Working Papers 697, Federal Reserve Bank of Minneapolis.
  2. Kyle F. Herkenhoff & Lee E. Ohanian, 2011. "Labor Market Dysfunction During the Great Recession," NBER Working Papers 17313, National Bureau of Economic Research, Inc.

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