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Saturday, March 17, 2007

Home Ownership and Sticky Unemployment

Marginal Revolution points to this article in Slate by Tim Harford on how home ownership is associated with persistent structural unemployment:

The Renter's Manifesto: Why home ownership causes unemployment, by Tim Harford, Slate: ...Any community, small or large, with a lot vested in a single industry is vulnerable to shifts in the economic landscape. Just ask the residents of Flint, Mich.

Globalization is often blamed, but it's not the only source of change. Domestic competition can be just as powerful, as any cafe owner with a Starbucks across the street can confirm. So can management blunders: Toyota seems to be demonstrating that it is profitable to make cars in the United States, just not in Detroit, and not with union labor. Then, there is technological change. Just think of all the typists who have been forced to learn new skills and find new jobs thanks to mighty Microsoft Office.

Big cities can struggle if they overspecialize and then find that times change. Detroit is an example. ... Which brings me to this week's mystery: Why do people still live in Detroit, which has suffered so much for so long? Why not move to Chicago or New York? ... [W]hy do they stay?

One reason, of course, is that community ties matter. Many people like to stay near where they were born. But many others would like to seek new opportunities...

But emotional ties are not the only ones that bind us. There are Byzantine restrictions on cross-border migration. ...[F]reer migration would promote creative, economically robust cities...

Even when we look only at internal migration, the barriers are formidable. Wherever people seem particularly keen to own their own homes—as in the United Kingdom, Spain, and some U.S. states—employment suffers as a result. English economist Andrew Oswald has shown that across European countries, and across U.S. states, high levels of home ownership are correlated with high levels of unemployment. More conventional factors such as generous welfare benefits or high levels of unionization don't explain unemployment nearly as well as the tendency to own houses. Renting your home and staying flexible do wonders for your chances of always finding an interesting job to do.

Recent research in the Economic Journal suggests that people who own their own homes form denser local networks, which help unearth local jobs. Still, the jobs tend to be less well-matched and commuting distances are longer. So, professor Oswald is right to argue that we should do everything possible to free up impediments to renting or to selling a house and buying a new one. It would be handy if we were allowed to build houses near Manhattan, too.

Even if we did all this, economists Ed Glaeser and Joe Gyourko argue that one serious barrier remains: Houses do not walk. No matter how bad things get in Detroit ..., the houses will still be there, and if they are cheap enough, people will want to live in them. The likely result is a gloomy sort of segregation: Those who feel that they can find a good job in the boom cities will move there and pay the higher rents. Those who are less confident of that would rather have no job in a cheap house than no job in an expensive house. Detroit will have residents for a long time to come.

    Posted by on Saturday, March 17, 2007 at 11:57 AM in Economics, Housing, Unemployment | Permalink  TrackBack (0)  Comments (36)


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