Are workers compensated by cheaper housing in regions where unemployment is high? Theory and evidence from a housing demand survey
AbstractThe 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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Date of creation: Aug 2005
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- NEP-ALL-2006-02-05 (All new papers)
- NEP-GEO-2006-02-05 (Economic Geography)
- NEP-LAB-2006-02-05 (Labour Economics)
- NEP-URE-2006-02-05 (Urban & Real Estate Economics)
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