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Are workers compensated by cheaper housing in regions where unemployment is high? Theory and evidence from a housing demand survey

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Wouter Vermeulen ()
Jos Van Ommeren ()

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Abstract

The empirical wage curve literature has demonstrated that workers in high-unemployment regions earn less. At the same time, many labour markets, especially in Europe, are characterised by persistent regional unemployment differentials and a low interregional labour mobility rate. It is argued in this paper that workers in high-unemployment regions are compensated in the housing market, which discourages migration to low-unemployment regions. We derive a multiregional efficiency wage model allowing for endogenous land prices, and therefore house prices, as well as endogenous lot sizes. It is shown that in high-unemployment regions, land prices are lower and lot sizes are larger. Therefore, aggregate regional house price data misrepresent the compensating differential. Employing a Dutch housing demand survey, we show that attribute corrected house prices and rents are 10.4 respectively 2.4 percent lower when regional unemployment is one percent higher.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa05p204.

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Date of creation: Aug 2005
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Handle: RePEc:wiw:wiwrsa:ersa05p204

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  1. Hanushek, Eric A & Quigley, John M, 1980. "What Is the Price Elasticity of Housing Demand?," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 449-54, August. [Downloadable!] (restricted)
  2. Gavin Cameron & John Muellbauer, 2001. "Earnings, unemployment, and housing in Britain," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 203-220. [Downloadable!]
  3. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
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  4. Hughes, Gordon & McCormick, Barry & McCormick, Barry, 1987. "Housing markets, unemployment and labour market flexibility in the UK," European Economic Review, Elsevier, vol. 31(3), pages 615-641, April. [Downloadable!] (restricted)
  5. Cameron, Gavin & Muellbauer, John, 1998. "The Housing Market and Regional Commuting and Migration Choices," CEPR Discussion Papers 1945, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Decressin, Jörg & Fatás, Antonio, 1994. "Regional Labour Market Dynamics in Europe," CEPR Discussion Papers 1085, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. repec:fth:prinin:343 is not listed on IDEAS
  8. Baltagi, Badi H. & Blien, Uwe, 1998. "The German wage curve: evidence from the IAB employment sample," Economics Letters, Elsevier, vol. 61(2), pages 135-142, November. [Downloadable!] (restricted)
  9. Layard, R. & Nickell, S., . "Layard-Nickell," Instructional Stata datasets for econometrics layardnickell, Boston College Department of Economics. [Downloadable!]
  10. Ermisch, J. F. & Findlay, J. & Gibb, K., 1996. "The Price Elasticity of Housing Demand in Britain: Issues of Sample Selection," Journal of Housing Economics, Elsevier, vol. 5(1), pages 64-86, March. [Downloadable!] (restricted)
  11. McCormick, Barry, 1997. "Regional unemployment and labour mobility in the UK," European Economic Review, Elsevier, vol. 41(3-5), pages 581-589, April. [Downloadable!] (restricted)
  12. Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
  13. DiPasquale, Denise & Somerville, C. Tsuriel, 1995. "Do House Price Indices Based on Transacting Units Represent the Entire Stock? Evidence from the American Housing Survey," Journal of Housing Economics, Elsevier, vol. 4(3), pages 195-229, September. [Downloadable!] (restricted)
  14. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June. [Downloadable!] (restricted)
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  15. Jackman, Richard & Savouri, Savvas, 1992. "Regional Migration in Britain: An Analysis of Gross Flows Using NHS Central Register Data," Economic Journal, Royal Economic Society, vol. 102(415), pages 1433-50, November. [Downloadable!] (restricted)
  16. Bover, Olympia & Muellbauer, John & Murphy, Anthony, 1989. "Housing, Wages and UK Labour Markets," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(2), pages 97-136, March.
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