Type of Housing Tenure or Occupancy - Essay Example

The role and effect of housing tenure on labour market Type of housing tenure or occupancy has some direct bearings on the labour market. The paper explores those connections through secondary research comprising consideration of existing literature and published data. This is not a country specific analysis; the inter relation has been substantiated with examples beyond any specific geographical boundary. The main focus of the paper is to find out whether housing tenure has any influence on labour market? The relationship between housing tenure and labour market was first discussed by Oswald (1996, 1998, and 1999). Existence of such a relation came into his mind following his evaluation of two parallel rising rates; proportion of home owners and aggregate unemployment rate in European countries. He opined of the existence of a positive and significant correlation between aggregate unemployment rate and fraction of homeownership. According to Oswald (1999) such a relation evolves from reduced mobility of labour associated with homeownership; mobility of labour as we all know is necessary for the efficient operation of labour market and automatic restoration of demand – supply equilibrium. This hypothesis of Oswald was later supported by many eminent scholars such as Green and Hendershott (2001). According to them owner occupied house is considered as a liquid asset during recession or economy crash and therefore acts as a positive incentive not to change place for job. Again it is difficult for a home owner to leave his abode to a new place since his home is immobile. These constraints are not present for renters so they are more likely to change place in search of job and therefore better suitable as an ingredient to restore demand – supply equilibrium in labour market. Homeownership and labour market has another important interlink and that might get classified as psychological. For a human bereft of home, joblessness directly transforms into homelessness, therefore an added urge for the search of a job that follows with a prompt reaction on behalf of the job searcher manifested through unconditional relocation. On the other hand a person who has a home to stay irrespective of his job (that is possible if one owns the home) might take much more time to relocate since out of the three basic needs of a human being he already posses one irrespective of the job or the money he might earn. Oswald moved a step further to note some interesting possibilities with direct or indirect impact on labour market generating from tenure type. First the home owners to live in a peaceful abode might collectively bargain against set up of industries, factories and even service sector in their residential areas. This will lead to less job creation and eventually to unemployment. On the other hand to stick to their owned home a homeowner might accept a job far from his residence and it might lead to traffic jam and obviously result in higher time spent on road and thereby economic inefficiency reflected through higher labour cost. This will eventually negatively influence job creation and lead to unemployment in long run. According to Munch et al. (2006) homeownership negatively influences the urge for moving out in search for new job and the geographical mobility of labour. They have also mentioned that a homeowner is satisfied with a much less wage to remain in his home and considers a very high wage as appropriate in case of distant jobs. Both these features are harmful for the health of the labour market. According to them the reservation wage for renters is same for local and distant labour market whereas for homeowners it is lower in local market and very high in distant market. This model is later modified by van Vuuren and van Leuvensteijn (2007). They have also opined that reservation wage is lower for homeowners in local market than the renters. However, according to them for distant market the relationship is undetermined. Theoretical indeterminacy of the association between housing tenure and labour market; lead to empirical work on the same. Oswald (1996, 1998) considered data of OECD countries over the period of 1960 – 1990 together with regions of countries like France, USA, UK, Italy Sweden, Australia, Canada, Finland and Spain. He estimated a rise in homeownership by 10% will lead to a rise of 2% in unemployment. Similar estimation on Finnish data by Pehkonen (1999) and on US related information by Patridge and Rickman (1997) yielded same outcome. All those estimates followed ordinary least square method of estimation (OLS). Nickell (1998) for the first time used panel data estimation and was followed by Nickell and Layard (1999) and Belot and Van Ours (2001) with the same approach. Unlike Oswald, Pehkonen, Patridge and Rickman they all used a much broader model to consider several other associated variables in checking the effect on unemployment of housing tenure. Trade union power, replacement rate, labour market policy etc. were some other variables that were considered in their model. However, a broader model did not change the interrelation between housing tenure and unemployment and they all concluded that home ownership has a significant positive impact on national unemployment at least for OECD countries. However later studies taken to determine the interrelation does not conform to Oswald’s hypothesis. Nickell at al. (2005) opined and proved that the relation between housing tenure type and unemployment become statistically non significant if apart from the institutional features; money supply shocks, labour demand, lagged unemployment rate and real rate of interest are introduced in the regression model. Signs of insignificance and instability in Oswald’s hypothesis also get conformed from the works of Gregg at al. (2004), Green and Hendershott (2001), Flatau et al. (2002) Most strikingly Garcia and Hernandez (2004) gets a significant but negative correlation between homeownership and rate of unemployment for Spain. Similar result has been found by Coulson and Fisher (2009) for USA. The literatures considered so far have yielded mutually conflicting results. Both the theoretical and statistical literature comes up with definite but undetermined interrelation between housing tenure and unemployment. It seems that data considered suffers from individual bias and needs correction from extraneous variable. Furthermore several other variables that might influence the relation have been kept outside. To determine the true relation between housing tenure and unemployment if any, we need to consider a better model with many other socio economic variables that some way or the other influences this relation. References Coulson, E., Fisher, L., (May 2009). Housing tenure and labor market impacts: The search goes on. Journal of Urban Economics 65 (3), 252-264 Oswald, A., (December 1996), A conjecture on the explanation for high unemployment in the industrialized nations: part 1, University of Warwick Economic Research Papers 475. Oswald, A., (1998), The missing piece of unemployment puzzle, CEPR Workshop on Unemployment Dynamics. Oswald, A., (May 1999), The housing market and Europes unemployment: A non-technical paper, unpublished paper, available at: www2.warwick.ac.uk/fac/soc/ economics/ staff/faculty/oswald/homesnt.pdf. (Accessed on September 27, 2010) Green, R., & Hendershott, P., (2001). Home-ownership and unemployment in the US, Urban Studies 38 (9), 1509-1520 van Vuuren, A., van Leuvensteijn, M., (August 2007), The impact of homeownership on unemployment in the Netherlands. CPB Discussion Paper 86, 53 Pehkonen, J., (1999) Unemployment and home-ownership, Applied Economics Letters 6, 263-265 Partridge, M., Rickman, D., (August 1997), The dispersion of us state unemployment rates: The role of market and non-market equilibrium factors. Regional Studies: The Journal of the Regional Studies Association 31 (14), 593-606. Nickell, S., (May 1998), Unemployment: Questions and some answers. Economic Journal, 108 (448), 802-816 Nickell, S., Layard, R. (1999), Labor market institutions and economic performance. In: Ashenfelter, O., Card, D. (Eds.), Handbook of Labour Economics. 3. 3029-3084. Gregg, P., Machin, S., Manning, A., (2004), Mobility and joblessness, In, Card, D., Blundell, R., Freeman, R. (Eds.), Seeking a Premier Economy: The Economic Effects of British Economic Reforms 1098-200. NBER Comparative Labor Market Series, University of Chicago Press Belot, M., Van Ours, J., (December 2001). Unemployment and labor market institutions: An empirical analysis. Journal of the Japanese and International Economies 15 (4), 403-418 Nickell, S., Nunziata, L., Ochel, W., (January 2005), Unemployment in the OECD since the 1960s what do we know? The Economic Journal 115, 1-27 Flatau, P., Forbes, M., Wood, G., Hendershott, P. & ODwyner, L., (December 2002), Home ownership and unemployment: Does the oswald thesis hold for Australian regions? Working Paper - Economics, Murdoch University 189. Read More