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Compensation of Regional Unemployment in Housing Markets. CEPS ENEPRI Working Papers No. 45, 24 April 2006

Vermeulen, Wouter and van Ommeren, Jos. (2006) Compensation of Regional Unemployment in Housing Markets. CEPS ENEPRI Working Papers No. 45, 24 April 2006. [Working Paper]

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    Abstract

    Why are regional unemployment differentials in Europe so persistent if, as the wage curve literature demonstrates, there is no compensation in labour markets? We hypothesise that workers in high-unemployment regions are compensated in housing markets. Modelling regional unemployment differentials as a consequence of centralised wage bargaining, we show that clearing of land markets may undo the incentive for workers to migrate to low-unemployment regions in general equilibrium. The compensating differentials hypothesis is tested on city-level data for several countries. Controlling for variation in income and amenities, housing is found to be about 3 percent less expensive on average in cities where unemployment is 10 percent up. An analysis of housing demand survey data, which takes account of housing heterogeneity, yields a similar negative relationship. The magnitude of the income effect generated by this compensating differential is consistent with a - 0.10 wage curve elasticity. Workers in regions with high unemployment and low per capita income are therefore not necessarily worse off, and regional support programs should take this into account.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > employment/labour market > employment/unemployment
    Subjects for EU documents: UNSPECIFIED
    EU Series: UNSPECIFIED
    ["eprint_fieldname_eusries" not defined]: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > ENEPRI Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 31 Mar 2007
    Page Range: p. 26
    Last Modified: 15 Feb 2011 17:44
    URI: http://aei.pitt.edu/id/eprint/6745

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