Relative Value vs Absolute Value: Housing Wealth and Labor Supply

Xiandeng Jiang (), Zheng Pan () and Ningru Zhao ()
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Xiandeng Jiang: Southwestern University of Finance and Economics
Zheng Pan: Zhongkai University of Agriculture and Engineering
Ningru Zhao: Nanjing Audit University

The Journal of Real Estate Finance and Economics, 2023, vol. 66, issue 1, No 2, 76 pages

Abstract: Abstract Whether household wealth affects labor market behavior is an important empirical question in economics. As the literature only discusses the effect of the absolute value of housing wealth on homeowners’ labor supply, this paper studies how a homeowner’s relative housing wealth—i.e., perceived housing wealth gain compared with their reference group-affects labor market behavior. Using China’s housing boom as a natural experiment, we first construct homeowners’ reference housing wealth using the hedonic method and then estimate the effect of homeowners’ relative housing wealth on labor supply. Subsequently, we identify a causal effect of relative housing wealth on homeowners’ labor supply using an instrumental variable approach and find that an appreciation in relative housing wealth does not significantly influence homeowners’ employment, but significantly reduces their working hours. Our results show that this reduction in working hours is mainly driven by female homeowners. Our results also suggest that the effects of relative housing wealth vary across educational backgrounds, marital statuses, and locations. We find that the effect is more pronounced for female homeowners who are less educated, married, and living in rural areas. Moreover, a set of robustness checks corroborates the validity of our identification strategies and tests the sensitivity of the results.

Keywords: Relative housing wealth; Reference housing wealth; Employment; Working hours (search for similar items in EconPapers)
JEL-codes: J22 R20 R30 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11146-022-09904-1

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