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Compensation of regional unemployment in housing markets

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  • Wouter Vermeulen

    () (CPB Netherlands Bureau for Economic Policy Analysis)

  • J. van Ommeren

Abstract

Why are regional unemployment differentials in Europe so persistent if, as the wage curve literature demonstrates, there is no compensation in labour markets? We hypothesise that workers in high-unemployment regions are compensated in housing markets. Modelling regional unemployment differentials as a consequence of centralised 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. Workers in regions with high unemployment and low per capita income are therefore not necessarily worse off, and regional support programs should take this into account.

Suggested Citation

  • Wouter Vermeulen & J. van Ommeren, 2006. "Compensation of regional unemployment in housing markets," CPB Discussion Paper 57, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:discus:57
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    Cited by:

    1. 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.
    2. Visar Hoxha & Alenka Temeljotov Salaj, 2014. "Fundamental Economic Factors That Affect Housing Prices: Comparative Analysis between Kosovo and Slovenia," Management, University of Primorska, Faculty of Management Koper, vol. 9(4), pages 323-348.
    3. Wouter Vermeulen & Jos Van Ommeren, 2009. "Compensation of Regional Unemployment in Housing Markets," Economica, London School of Economics and Political Science, vol. 76(301), pages 71-88, February.

    More about this item

    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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