Housing Market Regulation and Labor Market Dynamism

Abstract

The United States labor market has become less dynamic over the past three decades. This paper explores the contribution of housing market regulation towards these declines. First, a 1sd rise in housing market regulation is associated with a 0.11-0.22sd decline in the turnover rate. Second, these declines originate from a heightened cost of living, which drives up wages and depresses the demand for labor. Third, a back-of-the-envelope exercise suggests that, given the estimated elasticities, the rise in housing market regulation accounts for 12-24% of the decline in worker reallocation between 1990 and 2009.

Keywords: cost of living, housing market regulation, labor market dynamism, turnover

JEL Classification: J23, J31, J58, R31, R51