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"Mom, Dad: I’m staying”. Initial labor market conditions, housing markets, and welfare

Author

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  • Rodrigo Martínez-Mazza

    (Universitat de Barcelona & IEB)

Abstract

Young individuals are currently living with their parents more than at any other point in time, while also spending more on housing. In this paper, I first show how labor market entry conditions affect housing tenure and affordability in the long term, by using the unemployment rate at the time of graduation as an exogenous shock to income. I perform this analysis across Europe for the last 25 years. Results indicate that a 1 pp increase in the unemployment rate at the time of graduation leads, one year after, to (1) a 1.50 pp increase in the probability of living with parents, (2) a 1.02 pp decrease in the probability of home-ownership and 0.45 pp decrease in renting, and (3) worse affordability. Second, I develop an OLG model to link income shocks for young agents with changes in housing tenure at the aggregate level. I allow for an outside option for landlords which can introduce rigidity into the rental market. Results show that if rental markets are rigid, an income shock to young agents will translate into a larger share of them living with their parents, worse affordability, and larger welfare losses. Finally, I perform a policy exercise based on the French housing aid system. I show that housing aid policies can help to recover welfare losses for young agents, by enabling them to afford to rent. Recognizing the right scenario for the implementation of these policies is key to ensure welfare gains concentrate on the targeted population.

Suggested Citation

  • Rodrigo Martínez-Mazza, 2020. ""Mom, Dad: I’m staying”. Initial labor market conditions, housing markets, and welfare," Working Papers 2020/14, Institut d'Economia de Barcelona (IEB).
  • Handle: RePEc:ieb:wpaper:doc2020-14
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    File URL: https://ieb.ub.edu/publication/2020-14-mom-dad-im-staying-initial-labor-market-conditions-housing-markets-and-welfare/
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. “Mom, Dad: I’m staying”. Initial labor market conditions, housing markets, and welfare
      by Christian Zimmermann in NEP-DGE blog on 2021-02-22 21:26:46

    More about this item

    Keywords

    Housing; labor markets; long-term effects;
    All these keywords.

    JEL classification:

    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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