The roots of structural unemployment

by on March 17, 2007 at 1:20 pm in Economics | Permalink

English economist Andrew Oswald
has shown that across European countries, and across U.S. states, high
levels of home ownership are correlated with high levels of
unemployment.  More conventional factors such as generous welfare
benefits or high levels of unionization don’t explain unemployment
nearly as well as the tendency to own houses.  Renting your home and
staying flexible do wonders for your chances of always finding an
interesting job to do.

Tim Harford has more.

1 squik March 17, 2007 at 1:58 pm

Are you trying to be droll? Renting a house means you must have a source of funds to pay the rent. Once you own a home outright, you have a major expense off your back and thus may be able to afford to be unemployed.

2 spencer March 17, 2007 at 3:02 pm

What paper discusses this?

I looked at several of his papers and could not find this issue.

I suspect there is something about demographics that generates these results.

Probably the individual that has the most trouble finding a new job
is a laid off 55 year old homeowner. But is this because the individual
is a homeowner or because they are 55? Conversely, a 25 year old renter
probably finds a new job much quicker. But is this because they or a
renter or because they are 25?

3 spencer March 17, 2007 at 3:28 pm

There are a whole host of reasons why a 55 year old will have more difficulty and I had not even considered the pension factor.

Basically I was thinking more of the factor that the 55 year old will be looking for a senior position using their experience that pays much more while the 25 year old will be looking for a lower paying job and does not have so much embedded capital that he will try to earn a return on. For example, a 55 year old aerospace engineer will be looking for something that will use his education and experience in aerospace while the 25 year old will not be looking for such a narrowly defined job category and is much more willing to change fields even if they have a narrow formal education–as an aerospace engineer for example.

Moreover, the job structure is like a pyramid so that the higher you go the smaller and smaller the number of jobs become. Consequently, the 55 year old with higher pay expectations will just find fewer job opportunities then the 25 year old with lower expectations– or in economic terms a lower reservation wage. I do not know what the current data is, but headhunters have always had a rule of thumb that the higher the salary the longer the job search.

In general, doesn’t the switch to defined benefits means that the pension issue is becoming less and less significant over time?

4 Foobarista March 17, 2007 at 4:51 pm

This would seem obvious if one remembers that high-cost areas have both lots of renters and are likely to have lower levels of unemployment. All this study correlates to is the fact that cheap areas with fewer renters are areas without much economic activity.

5 Ronald Brak March 17, 2007 at 5:53 pm

So a policy prescription to reduce unemployment would be to reduce the cost of buying and selling homes?
For example, eliminating stamp duty on home purchases. (That is if you have stamp duty in the U.S.)

6 dearieme March 17, 2007 at 8:20 pm

Obviously the unemployed buy houses because they have the leisure time to improve and decorate them. No-one would bother improving a rented house.

7 triticale March 17, 2007 at 11:17 pm

I’m 56. I own my home outright. I have a specialized technical telecom skill which pays pretty well when I’m needed, and I spend about a quarter of my time unemployed. My wee wifey works in health care, and thus gets excellent benefit coverage for the two of us.

8 josh March 18, 2007 at 9:34 am

“But is this because the individual
is a homeowner or because they are 55? Conversely, a 25 year old renter
probably finds a new job much quicker. But is this because they or a
renter or because they are 25?”

Good point, but I hope they would have adjusted for demographics.

9 Blissex March 18, 2007 at 2:17 pm

Some UK conservative think tank did a study 20 years ago that showed that voting for parties of the right correlated very highly with home and car ownership, and as a result the Thatcher government gave away a lot of houses and discouraged public transport, and now the UK has a permanent majority of right wing voters…

It may be that when most voters are home and asset owners they tend to vote for parties of the right who don’t care that much, or wors, about unemployment, or underemployment.

Consider the UK 20 years later, today: the government is so keen on protecting the interests of middle aged or retired home and asset owners (which are the majority of voters) that it has adopted policies designed to harm low end salaries and raise unemployment of the young.

Then as others have pointed out home owners tend to find it harder to get jobs as they are middle aged, and also have less urgency to do so as they don’t need to pay rent and have savings to tide them over.

10 Martin March 19, 2007 at 3:48 am

Keith,

“This is simply idiotic. Arguing in this vein, I could point out that humans were nomadic hunter-gatherers for many more millenia, so we should give up on the idea of permanent shelter altogether, and it would be stupid, but still not quite as stupid as this argument.”

Play the ball, son, not the man.

The argument is not anti economics; but it is most certainly anti-economist.

11 Ricky March 19, 2007 at 8:04 pm

The data probably should show that more ownership in homes will correlate to higher unemployment. Once most people dive into the ownership in a home they tend to root themselves into that area for a few years. If people are renting out a place it is much easier to relocate quickly and not have too many problems. If an unemployed worker is renting it only makes sense that it will be easier for them to find a job they want and be capable of moving to get the job.

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