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House Lock and Structural Unemployment

  • Valletta, Robert G.

    ()

    (Federal Reserve Bank of San Francisco)

A recent decline in geographic mobility in the United States may have been caused in part by falling house prices, through the "lock in" effects of financial constraints faced by households whose housing debt exceeds the market value of their home. I analyze the relationship between such "house lock" and the elevated levels and persistence of unemployment during the recent recession and its aftermath, using data that covers the period through the end of 2011. Because house lock will extend job search in the local labor market for homeowners whose home value has declined, I focus on differences in unemployment duration between homeowners and renters across geographic areas differentiated by the severity of the decline in home prices. The empirical analyses rely on microdata from the monthly Current Population Survey (CPS) files and an econometric method that enables the estimation of individual and aggregate covariate effects on completed unemployment durations in "synthetic cohort" (pseudo-panel) data. The estimates indicate the absence of a meaningful house lock effect on unemployment duration.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7002.

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Length: 42 pages
Date of creation: Nov 2012
Date of revision:
Publication status: published in: Labour Economics, 2013, 25, 86–97
Handle: RePEc:iza:izadps:dp7002
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