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Estimating the Impact of House Prices on Household Labour Supply in the UK

Zhechun He

Discussion Papers from Department of Economics, University of York

Abstract: This paper applies the British Household Panel Survey (BHPS) from 1997-2008 and study the impact of local authority district house prices on labour supply of couples via bivariate seemingly unrelated regression (SUR) probit and tobit models after imputing potential wages for both workers and non-workers using the Heckman selectivity approach. The use of local authority district house prices has the virtue of being disaggregate and exogenous to the individual. This avoids the potential simultaneity bias from using self-reported house prices (this and labour supply may both be affected by unobserved individual heterogeneity). We allow for the interdependent nature of the couple's labour supply decisions and enhance efficiency of estimation by exploiting the structure in the error terms of the two-equation system. We find heterogeneous responses of labour supply from different household types to house prices as well as the joint decision making of spouses/partners within a household on labour supply. Gender and age differences are present. Our results give interpretations on the role of the different channels through which this impact is driven, including wealth effects, borrowing constraints, precautionary savings, bequest motives and habit formation.

Keywords: labour supply; house prices (search for similar items in EconPapers)
JEL-codes: D1 J22 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-eur and nep-ure
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