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The effect of the housing market on mobility and unemployment

Written by M. Ambjörnsson

Paper category

Bachelor Thesis

Subject

Economics

Year

2013

Abstract

Thesis: Labor mobility is based on theoretical labor migration, i. e. Labor mobility, which occurs when changes in the demand and supply of goods and services cause changes in relative wages between regions. Workers move to areas where they receive the highest relative wages. The increase in relative wages increases productivity and economic efficiency, because individuals are paid based on their productivity. Labor migration continues until the relative wages between regions are equal. If there are immigration costs or other types of friction, there is a wage gap between regions. However, the labor market is not perfectly competitive in most cases. Due to reasons such as efficiency wages or collective bargaining, wages are usually sticky. This means that employment opportunities have become more important as an incentive for immigrants. Workers move from areas with high unemployment to areas with low unemployment. This balances the unemployment rate among regions. (Westerlund, 2001) Determinants of migration The previous part explained that wages and employment opportunities are important determinants of migration, but migration costs are also important when individuals make migration decisions. A common model, such as Holmberg (1984) and Bujarati (2013), is based on the assumption that individuals try to maximize the total utility by analyzing the benefits and costs of migration. Among them, vmis is the income from personal movement, vs is the income left by the individual, and cmis is the cost of migration. vm, vsand cm includes monetary cost and non-monetary cost, but for comparison purposes, non-monetary cost must have monetary value. For families, migration decisions are usually more complicated. A dual-income family should consider two changes in income when deciding, and the child will increase the cost of moving. Therefore, the migration rate of households is usually low. The above model can be easily extended to the home version. Change vm, vs and cms, they represent the income and cost of the entire family, not just individuals. The decision to emigrate also depends on the age of the individual. Young people migrate more than older people. Young workers get more benefits from moving because they will work longer hours. Older workers usually accumulate more work experience, some of which may be specific, or they may have better job security. If this is the case, their migration costs will be higher. Another explanation is that older people accumulate more consumer goods, which requires a lot of money to move to a new destination. (Holmberg, 1984) The level of education also affects mobility. People with higher education are often faced with a specific labor market, subject to geographic restrictions, and higher wages, which means that the potential benefits of immigration are greater. Another explanation is that they are more efficient in job hunting and easier to find jobs. Therefore, they are more likely to migrate. (Holmberg, 1984) The impact of housing ownership on mobility and unemployment The main focus of this thesis is that housing ownership affects mobility and unemployment. Oswald (1996, 1999) believes that the housing market is likely to affect labor mobility. Compared with renters, the migration cost of homeowners is higher. Selling a house and moving is expensive. The fixed costs involved in the process of becoming an owner connect the owner to their home. Owning a house involves long-term financial commitments and financial risks. Owners often have to borrow money to buy a house, and they must ensure that they have enough money to repay the mortgage when they move. When moving in and out of a self-owned house, transaction costs such as taxes and fees for real estate agents are also involved. Owners face exit costs when they move, so liquidity is lower than renters. This makes homeowners more susceptible to economic changes, and regions with a high proportion of homeowners (the percentage of households with homeowners) have higher unemployment rates. According to Oswald, the second problem is that individuals with little or no capital have a harder time moving to areas with a high share of owners, so it’s harder for them to enter these areas and find jobs. Coulson and Fischer (2002) used a search model to explain the difference in mobility between workers' influence on employment. Workers look for companies that have jobs, and companies look for workers. They try to match each other. For the sake of simplicity, the labor market is divided into two labor markets, the family area and anywhere else. Suppose the landlord can only search at home, while renters can search at home and anywhere else. The probability that a worker and a company match in their hometown area within a certain period of time is phand. The probability that the worker loses his job during that period of time is d. Solving for the steady state unemployment rate gives the owner's unemployment rate. Workers and companies are matched anywhere else at a certain time. This gives the probability that the worker and the company match in any field approximately ph + pe. Solve the steady-state unemployment rate to get the unemployment rate of renters. Comparing these solutions shows that the unemployment rate of the owners is higher. Individuals with lower mobility have higher unemployment rates. The above reasoning assumes that renters are completely mobile. This is not always the case, because it is not always possible to find rental apartments at the destination. If renters do not line up at the destination they want to move to or are likely to buy an apartment, they may be in a situation where they cannot move. Owners will have more mobility because they can sell their house, take the money they get from the sale, and buy a new house at the destination. You can also use search models to explain this effect. Read Less