Homeownership and labor market outcomes: disentangling externality and composition effects
2017
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.
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