The risk of job loss, household formation and housing demand: evidence from differences in severance payments

Cristina Barceló () and Ernesto Villanueva
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Cristina Barceló: Banco de España

No 1849, Working Papers from Banco de España

Abstract: Recent cohorts in various developed countries take a longer time to form their own household and display lower rates of home ownership than older cohorts. Previous literature has linked these developments to higher job instability, especially among youths. We exploit the large differences in firing costs across contract types in the Spanish labor market to identify the causal link between sharp changes in the risk of job loss and the timing of different forms of household formation among youths. Our identification strategy uses variation in regional incentives for firms to promote high firing cost contracts between 1997 and 2009. Using data from the 2002-2014 waves of the Spanish Survey of Household Finances, we document that an increase of 1% in the stock of workers with an open-ended contract increases the probability of forming a new household by a similar magnitude (especially through renting new accommodation). The results are consistent with the predictions of precautionary saving models, whereby individuals exposed to the risk of job loss postpone their consumption of housing services.

Keywords: job insecurity; household formation; housing investments (search for similar items in EconPapers)
JEL-codes: D91 J1 J2 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2018-12
New Economics Papers: this item is included in nep-eur, nep-lma and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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