Compensation of regional unemployment in housing markets

Wouter Vermeulen and J. van Ommeren

No 57, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: Why are regional unemployment differentials in Europe so persistent if, as the wage curve literature demonstrates, there is no compensation in labour markets? Why are regional unemployment differentials in Europe so persistent if, as the wage curve literature demonstrates, there is no compensation in labour markets? We hypothesise that workers in high-unemployment regions are compensated in housing markets. Modelling regional unemployment differentials as a consequence of centralised wage bargaining, we show that clearing of land markets may undo the incentive for workers to migrate to low-unemployment regions in general equilibrium. The compensating differentials hypothesis is tested on city-level data for several countries. Controlling for variation in income and amenities, housing is found to be about 3 percent less expensive on average in cities where unemployment is 10 percent up. An analysis of housing demand survey data, which takes account of housing heterogeneity, yields a similar negative relationship. The magnitude of the income effect generated by this compensating differential is consistent with a -0.10 wage curve elasticity. Workers in regions with high unemployment and low per capita income are therefore not necessarily worse off, and regional support programs should take this into account.

JEL-codes: J64 R13 R23 (search for similar items in EconPapers)
Date: 2006-02
New Economics Papers: this item is included in nep-eec, nep-geo, nep-lab and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.cpb.nl/sites/default/files/publicaties ... -housing-markets.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpb:discus:57

Access Statistics for this paper

More papers in CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis Contact information at EDIRC.
Bibliographic data for series maintained by (info@cpb.nl).