Geographical reallocation and unemployment during the Great Recession: The role of the housing bust

Arbeitspapier

This paper quantitatively evaluates the hypothesis that the housing bust in 2007 decreased geographical reallocation and increased the dispersion and level of unemployment during the Great Recession. We construct an equilibrium model of multiple locations with frictional housing and labor markets. When house prices fall, the amount of home equity declines, making it harder for homeowners to afford the down payment on a new house after moving. Consequently, the decline in house prices reduces migration and causes unemployment to rise differently in different locations. The model accounts for 90 percent of the increase in geographical dispersion of unemployment and the entire decline in net migration. However, despite large effects on migration and geographical dispersion of unemployment, the effect on aggregate unemployment is moderate: Our findings suggest that, absent the housing bust, aggregate unemployment would have been 0.5 percentage point lower.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 605

Classification and Topics

• Classification: Wirtschaft ; Geographic Labor Mobility; Immigrant Workers ; Unemployment: Models, Duration, Incidence, and Job Search ; Size and Spatial Distributions of Regional Economic Activity ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
• Subject: geographical reallocation ; housing bust ; migration ; unemployment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Karahan, Fatih ; Rhee, Serena
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/93665
• Last update: 10.03.2025, 11:43 AM CET