On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates

Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Philadelphia
Working Papers
Interactions between job search and housing decisions: a structural estimation
Sílvio Rendon
Núria Quella-Isla

In this paper, we investigate to what extent shocks in housing and financial markets account for wage and employment variations in a frictional labor market. To explain these interactions, we use a model of job search with accumulation of wealth as liquid funds and residential real estate, in which house prices are randomly persistent. First, we show that reservation wages and unemployment are increasing in total wealth. And, second, we show that reservation wages and unemployment are also responsive to the composition of wealth. Specifically, when house prices are expected to rise, holding a larger share of wealth as residential real estate tends to increase reservation wages, which deteriorates employment transitions and increases unemployment. We estimate our model structurally using National Longitudinal Survey of Youth data from 1978 to 2005, and we find that more relaxed house financing conditions, in particular lower down payment requirements, decrease employment rates by 5 percentage points in the short run and by 2 percentage points in the long run. We also find that worse labor market conditions immediately increase homeownership rates by up to 5 percent points, whereas in the long run homeownership decreases by 8 percentage points.

Download Full text
Cite this item
Sílvio Rendon & Núria Quella-Isla, Interactions between job search and housing decisions: a structural estimation, Federal Reserve Bank of Philadelphia, Working Papers 15-27, 21 Jul 2015.
More from this series
JEL Classification:
Subject headings:
Keywords: Job search; Housing; Savings; Structural estimation
For corrections, contact Beth Paul ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal