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Homeownership and labor market outcomes: disentangling externality and composition effects

Ch.-M. Chevalier and R. Lardeux
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Ch.-M. Chevalier: Insee, Crest
R. Lardeux: Insee, Cred Université Paris 2

Documents de Travail de l'Insee - INSEE Working Papers from Institut National de la Statistique et des Etudes Economiques

Abstract: While homeownership and unemployment rates are positively related (Oswald, 1996), owners generally have better labor market outcomes. This paper addresses this paradox, disentangling a composition effect and a negative externality. On the one hand, if owners are less likely to be unemployed than renters, a higher homeownership rate should mechanically translate into a lower unemployment rate through a composition effect. On the other hand, extended homeownership may generate a negative externality in the form of frictions impeding matching on the labor market. We carry out estimations at the individual and aggregate levels, using the French Census on a large time span (1968-2011) and interpret the results within a job matching model featuring a composition effect and a negative externality. In the French case, the latter outweighs the former and the homeownership rate is positively correlated with the unemployment rate. Finally, a 10 points rise in the local homeownership rate would be associated to frictions increasing unemployment by around 1 point.

Keywords: homeownership; local labor market; externality; composition effect (search for similar items in EconPapers)
JEL-codes: J21 J31 J64 R21 (search for similar items in EconPapers)
Date: 2017
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