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Why do home owners work longer hours?

  • Renata Bottazzi

    ()

    (Institute for Fiscal Studies)

  • Hamish Low

    ()

    (Institute for Fiscal Studies and Trinity College, Cambridge)

  • Matthew Wakefield

    ()

    (Institute for Fiscal Studies and University of Bologna)

This paper uses a structural model to address the question of why home-owners with large mortgage debt work longer hours than those without such debt. We consider whether this is due to lower net wealth or to capital market imperfections, including mortgage constraints that depend on current earnings and, therefore, labour supply choices. We show that the need to meet current mortgage commitments can generate the observed correlation, and this impact of current commitments arises from the institutional borrowing constraints. We also show that labour supply as a function of household debt is highly nonlinear: those with greater debt are more likely to face binding borrowing constraints and their labour supply is more variable.

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File URL: http://www.ifs.org.uk/wps/wp0710.pdf
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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W07/10.

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Date of creation: Jul 2007
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Handle: RePEc:ifs:ifsewp:07/10
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  1. Renata Bottazzi, 2004. "Labour market participation and mortgage related borrowing constraints," IFS Working Papers W04/09, Institute for Fiscal Studies.
  2. Ortalo-Magne, Francois & Rady, Sven, 2002. "Tenure choice and the riskiness of non-housing consumption," Journal of Housing Economics, Elsevier, vol. 11(3), pages 266-279, September.
  3. Hamish Low & Costas Meghir & Luigi Pistaferri, 2008. "Wage risk and employment risk over the life cycle," IFS Working Papers W08/06, Institute for Fiscal Studies.
  4. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-43, May.
  5. Del Boca, Daniela & Lusardi, Annamaria, 2003. "Credit market constraints and labor market decisions," Labour Economics, Elsevier, vol. 10(6), pages 681-703, December.
  6. Deaton, A., 1989. "Saving And Liquidity Constraints," Papers 153, Princeton, Woodrow Wilson School - Public and International Affairs.
  7. Orazio P. Attanasio & Guglielmo Weber, 1994. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," NBER Working Papers 4795, National Bureau of Economic Research, Inc.
  8. Blundell, Richard & Browning, Martin & Meghir, Costas, 1994. "Consumer Demand and the Life-Cycle Allocation of Household Expenditures," Review of Economic Studies, Wiley Blackwell, vol. 61(1), pages 57-80, January.
  9. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
  10. Fortin, Nicole M, 1995. "Allocation Inflexibilities, Female Labor Supply, and Housing Assets Accumulation: Are Women Working to Pay the Mortgage?," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 524-57, July.
  11. Christopher D. Carroll, 1996. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," NBER Working Papers 5788, National Bureau of Economic Research, Inc.
  12. Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 535-567.
  13. Jeffrey R. Campbell & Zvi Hercowitz, 2004. "The Dynamics of Work and Debt," NBER Working Papers 10201, National Bureau of Economic Research, Inc.
  14. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
  15. Nordvik, Viggo, 2001. "A Housing Career Perspective on Risk," Journal of Housing Economics, Elsevier, vol. 10(4), pages 456-471, December.
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