Interactions between job search and housing decisions: a structural estimation

Núria Quella and Silvio Rendon

No 15-27, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: In this paper, we investigate to what extent shocks in housing and financial markets account for wage and employment variations in a frictional labor market. To explain these interactions, we use a model of job search with accumulation of wealth as liquid funds and residential real estate, in which house prices are randomly persistent. First, we show that reservation wages and unemployment are increasing in total wealth. And, second, we show that reservation wages and unemployment are also responsive to the composition of wealth. Specifically, when house prices are expected to rise, holding a larger share of wealth as residential real estate tends to increase reservation wages, which deteriorates employment transitions and increases unemployment. We estimate our model structurally using National Longitudinal Survey of Youth data from 1978 to 2005, and we find that more relaxed house financing conditions, in particular lower down payment requirements, decrease employment rates by 5 percentage points in the short run and by 2 percentage points in the long run. We also find that worse labor market conditions immediately increase homeownership rates by up to 5 percent points, whereas in the long run homeownership decreases by 8 percentage points.

Keywords: Job search; Housing; Savings; Structural estimation (search for similar items in EconPapers)
JEL-codes: E21 E24 J64 R21 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2015-07-21
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac and nep-ure
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Citations: View citations in EconPapers (1)

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Journal Article: Interactions between job search and housing decisions: A structural estimation (2023)
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