Labor supply response to home value shocks: Evidence from Japan

This paper examines the extent to which the labor supply of homeowners aged 40 years or over responds to unanticipated shocks to home values in Japan. Our findings suggest that only older homeowners respond to home value shocks. While older women strive to remain in the labor force, they tend to reduce their hours worked. Specifically, we find that an unanticipated one standard deviation increase in home value leads to a 5.2% reduction in hours worked per week relative to their average. Among older men, a small proportion choose to exit the labor force, while others reduce their hours worked without leaving their job. Specifically, an unanticipated one standard deviation increase in home value leads to a decrease in the likelihood of labor force participation by 4.8% and a reduction in hours worked per week of 9.2%, both relative to their average. We also find that women respond to home value shocks at a younger age than men. Women decrease their hours worked per week from the age of 55, while men start to reduce theirs from the age of 65. The small and late response to a home value shock among older homeowners may reflect the peculiarities of Japan’s housing and labor markets.