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Homeownership and Unemployment: The Roles of Leverage and Public Housing

  • Paul Flatau
  • Matt Forbes
  • Patric H. Hendershott

Oswald hypothesizes that regions and countries with high homeownership rates will experience higher natural rates of unemployment and that rising homeownership in OECD countries since the 1960s provides a key explanation for the rise in the natural rate of unemployment over the same time period. Recent tests of the Oswald thesis have found the opposite. This study differs from earlier ones both by considering different states of ownership (degrees of leverage) and types of tenancy (private, public, and rent-free) and by examining data from Australia, rather than the U.S. We demonstrate that the recent anti-Oswald results are the result of (1) highly leveraged owners having a greater incentive to remain employed and to become reemployed more rapidly that outright owners and (2) those paying below-market rents having a lower incentive to avoid unemployment or become reemployed than those paying market rents. The only positive Oswald result is that females who are outright owners have significantly slower exits from unemployment. Overall, homeownership does not increase unemployment. Finally, in line with expectations but in contrast to some earlier studies, our results indicate a significant impact of the predicted replacement ratio (unemployment benefits to wage if reemployed) on unemployment behavior. Persons with a higher predicted ratio are significantly more likely to become unemployed, and unemployed females with a higher predicted replacement ratio have longer unemployment spells than those with lower predicted ratios.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10021.

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Date of creation: Oct 2003
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Handle: RePEc:nbr:nberwo:10021
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  1. Hughes, Gordon & McCormick, Barry, 1981. "Do Council Housing Policies Reduce Migration between Regions?," Economic Journal, Royal Economic Society, vol. 91(364), pages 919-37, December.
  2. Bover, Olympia & Muellbauer, John & Murphy, Anthony, 1988. "Housing, Wages and UK Labour Markets," CEPR Discussion Papers 268, C.E.P.R. Discussion Papers.
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  4. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
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  6. Oswald Andrew J., 1996. "A Conjecture on the Explanation for High Unemployment in the Industrialized Nations : Part I," The Warwick Economics Research Paper Series (TWERPS) 475, University of Warwick, Department of Economics.
  7. Minford, Patrick & Ashton, Paul & Peel, Michael, 1988. "The Effects of Housing Distortions on Unemployment," Oxford Economic Papers, Oxford University Press, vol. 40(2), pages 322-45, June.
  8. Caplin, Andrew & Freeman, Charles & Tracy, Joseph, 1997. "Collateral Damage: Refinancing Constraints and Regional Recessions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 496-516, November.
  9. McCormick, Barry, 1983. "Housing and Unemployment in Great Britain," Oxford Economic Papers, Oxford University Press, vol. 35(0), pages 283-305, Supplemen.
  10. Quigley, John M, 1987. "Interest Rate Variations, Mortgage Prepayments and Household Mobility," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 636-43, November.
  11. M. van Leuvensteijn & P. Koning, 2004. "The Effect of Home-ownership on Labor Mobility in The Netherlands," Working Papers 04-01, Utrecht School of Economics.
  12. Archer, Wayne R. & Ling, David C. & McGill, Gary A., 1996. "The effect of income and collateral constraints on residential mortgage terminations," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 235-261, June.
  13. Richard K. Green & Patric H. Hendershott, 2001. "Home-ownership and Unemployment in the US," Urban Studies, Urban Studies Journal Limited, vol. 38(9), pages 1509-1520, August.
  14. Mark Partridge & Dan Rickman, 1997. "The Dispersion of US State Unemployment Rates: The Role of Market and Non-market Equilibrium Factors," Regional Studies, Taylor & Francis Journals, vol. 31(6), pages 593-606.
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