Compensation of Regional Unemployment in Housing Markets

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 05-093/3

Classification and Topics

• Classification: Wirtschaft ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics ; General Equilibrium and Welfare Economic Analysis of Regional Economies ; Unemployment: Models, Duration, Incidence, and Job Search
• Subject: regional unemployment ; housing markets ; wage curve ; compensating differentials ; hedonic models ; regional policy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Vermeulen, Wouter ; van Ommeren, Jos
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/86379
• Last update: 10.03.2025, 11:41 AM CET