Homeowners are typically more educated and have more labour market experience than
people who rent their accommodation. And while unemployed homeowners are less likely
to move for job reasons, they find new jobs in the local labour market much faster than
renters. They therefore have shorter spells of unemployment, and their probability of finding
employment is 42% higher than that of renters.
These are the central conclusions in a new study of the link between home ownership and
unemployment by Professor Jakob Roland Munch and colleagues. The results, which are
published in the October 2006 Economic Journal, come from analysis of a large sample of
workers in the Danish labour market.
The results are consistent with a simple theory of how people search for jobs in the labour
market. In the event of unforeseen unemployment, homeowners do not search intensively
for new jobs in distant labour markets because in doing so they would incur relatively high
moving costs.
Instead, to avoid having to sell their homes and incur the costs of mobility, they are more
willing to accept jobs in the local labour market at a lower wage rate than renters. The net
effect of being less willing to move and more willing to accept local jobs may be positive or
negative and is in that sense an empirical question.
The impact of home ownership on unemployment has attracted much attention, and these
results are at odds with previous research building on macroeconomic data. For example,
one often cited study found that countries or regions with a 10 percentage points higher
proportion of homeowners have a two percentage points higher unemployment rate. Since
many European countries have high home ownership rates, it has been suggested that
home ownership may be an important determinant behind Europe’s relatively high
unemployment levels.
The relationship between home ownership and unemployment is linked to labour market
experience and the housing tenure choice of each individual worker. The conflicting
conclusions from micro and macro data thus highlight the importance of using individual
level data to study individual behaviour.
One key advantage of using micro data is the possibility of taking into account the fact that
homeowners typically have more favourable labour market characteristics than renters:
they are typically more educated and have more labour market experience.
Homeowners in most Western countries receive favourable tax treatment of the capital
invested in their homes, which tends to raise the proportion of homeowners. The results of
this research suggest that such a policy cannot be criticised for leading to higher
unemployment. Home ownership rather improves individual labour market outcomes.
But this is not to say that home ownership should be subsidised since such positive returns
only accrue to the individual homeowner. Favourable tax treatment of homeowners would
only be called for if there are market failures in housing markets, or if home ownership
brings about important positive external effects on, for example, crime or citizenship.
ENDS
Notes for editors: ‘Are Homeowners Really More Unemployed?’ by Jakob Roland Munch,
Michael Rosholm and Michael Svarer is published in the October 2006 issue of the
Economic Journal.
Jakob Roland Munch is at the University of Copenhagen. Michael Rosholm and Michael
Svarer are at the University of Aarhus.
For further information: contact Romesh Vaitilingam on 07768-661095 (email:
romesh@compuserve.com); or Jakob Roland Munch via email:
Jakob.Roland.Munch@econ.ku.dk