Compensation of Regional Unemployment in Housing Markets

Wouter Vermeulen () and Jos van Ommeren ()
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Wouter Vermeulen: CPB Netherlands Bureau for Economic Policy Analysis, The Hague

No 05-093/3, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper resulted in a publication in 'Economica' , 2008, 76(301), 71-88.

Why are regional unemployment differentials in Europe so persistent if, as the wage curve literature demonstrates, there is no compensation in labour markets? We hypothesize that workers in high-unemployment regions are compensated in housing markets. Modelling regional unemployment differentials as a consequence of centralized 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. These findings weaken the case for regional support programs.

Keywords: regional unemployment; housing markets; wage curve; compensating differentials; hedonic models; regional policy (search for similar items in EconPapers)
JEL-codes: J64 R13 R23 (search for similar items in EconPapers)
Date: 2005-10-13
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Compensation of Regional Unemployment in Housing Markets (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20050093

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