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Housing Liquidity, Mobility, and the Labour Market

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  • Head, Allen
  • Lloyd-Ellis, Huw

Abstract

We study the interactions among geographical mobility, unemployment and home- ownership in an economy with heterogeneous locations, endogenous construction and search frictions in the markets for both labour and housing. The decision of home- owners to accept job offers from other cities depends on how quickly they can sell their houses (i.e. their liquidity), which in turn depends on local labour market conditions. Consequently, home-owners accept job offers from other cities at a lower rate than do renters, generating a link between home-ownership and aggregate unemployment. When calibrated to match aggregate U.S. statistics on mobility, housing and labour flows, our model predicts that the effect of home-ownership on aggregate unemployment is small. When unemployment is high, however, changes in the rate of home-ownership can have economically significant effects.

Suggested Citation

  • Head, Allen & Lloyd-Ellis, Huw, 2011. "Housing Liquidity, Mobility, and the Labour Market," Queen's Economics Department Working Papers 273683, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273683
    DOI: 10.22004/ag.econ.273683
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