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Compensation of Regional Unemployment in Housing Markets

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  • Wouter Vermeulen

    (CPB Netherlands Bureau for Economic Policy Analysis, The Hague)

  • Jos van Ommeren

    (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

Abstract

This discussion paper resulted in a publication in 'Economica' , 2008, 76(301), 71-88. Why are regional unemployment differentials in Europe so persistent if, as the wage curve literature demonstrates, there is no compensation in labour markets? We hypothesize that workers in high-unemployment regions are compensated in housing markets. Modelling regional unemployment differentials as a consequence of centralized 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. These findings weaken the case for regional support programs.

Suggested Citation

  • Wouter Vermeulen & Jos van Ommeren, 2005. "Compensation of Regional Unemployment in Housing Markets," Tinbergen Institute Discussion Papers 05-093/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20050093
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    Cited by:

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    3. Jean-Baptiste Combes & Eric Delattre & Bob Elliott & Diane Skåtun, 2015. "Hospital staffing and local pay: an investigation into the impact of local variations in the competitiveness of nurses’ pay on the staffing of hospitals in France," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(7), pages 763-780, September.
    4. Rokicki, Bartlomiej & Blien, Uwe & Hewings, Geoffrey J.D. & thi Hong Van, Phan, 2021. "Is there a wage curve with regional real wages? An analysis for the US and Poland," Economic Modelling, Elsevier, vol. 102(C).
    5. Stefano Colonnello & Roberto Marfè & Qizhou Xiong, 2024. "Housing Yields," Carlo Alberto Notebooks 716 JEL Classification: G, Collegio Carlo Alberto.

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    More about this item

    Keywords

    regional unemployment; housing markets; wage curve; compensating differentials; hedonic models; regional policy;
    All these keywords.

    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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