The Role of Housing in Labor Reallocation

52 Pages Posted: 3 Dec 2010

See all articles by Morris A. Davis

Morris A. Davis

Rutgers Business School

Jonas D. M. Fisher

Federal Reserve Bank of Chicago - Economic Research Department

Marcelo Veracierto

Federal Reserve Bank of Chicago - Research Department

Date Written: November 29, 2010

Abstract

This paper builds a dynamic general equilibrium model of cities and uses it to analyze the role of local housing markets and moving costs in determining the character and extent of labor reallocation in the US economy. Labor reallocation in the model is driven by idiosyncratic city-specific productivity shocks, which we measure using a dataset that we compile using more than 350 U.S. cities for the years 1984 to 2008. Based on this measurement, we find that our model is broadly consistent with the city-level evidence on net and gross population flows, employment, wages and residential investment. We also find that the location-specific nature of housing is more important than moving costs in determining labor reallocation. Absent this quasi-fixity of housing, and under various assumptions governing population flows, population and employment would be much more volatile than observed.

Keywords: Migration, Cities, Housing markets, Labor markets

JEL Classification: J61, R23, R31

Suggested Citation

Davis, Morris A. and Fisher, Jonas D. M. and Veracierto, Marcelo, The Role of Housing in Labor Reallocation (November 29, 2010). FRB of Chicago Working Paper No. 2010-18, Available at SSRN: https://ssrn.com/abstract=1718493 or http://dx.doi.org/10.2139/ssrn.1718493

Morris A. Davis

Rutgers Business School ( email )

Rutgers Business School
One Washington Park #1092
Newark, NJ 07102
United States

Jonas D. M. Fisher (Contact Author)

Federal Reserve Bank of Chicago - Economic Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States

Marcelo Veracierto

Federal Reserve Bank of Chicago - Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States
(312) 322-6595 (Phone)

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