The Persistent Employment Effects of the 2006-09 U.S. Housing Wealth Collapse

39 Pages Posted: 28 Mar 2019 Last revised: 29 Apr 2020

See all articles by Saroj Bhattarai

Saroj Bhattarai

University of Texas at Austin - Department of Economics

Felipe Schwartzman

Federal Reserve Banks - Federal Reserve Bank of Richmond

Choongryul Yang

University of Texas at Austin

Date Written: 2019-03-08

Abstract

We show that the housing wealth collapse of 2006-09 had a persistent impact on employment across counties in the U.S. In particular, localities that had a larger loss in housing net worth during that period had more depressed employment as late as 2016, without a commensurate population response. The use of IV's and controls to identify the causal impact of the wealth shock amplifies those results, leading to an estimate that a 10 percent change in housing net worth between 2006 and 2009 causes a 4.5 percent decline in local employment by 2016, as compared with a 2006 baseline. We do not find a long-term causal impact of the shock on wages. Sectoral results indicate, however, that the results are unlikely to be purely a result of persistently low demand, since, contrary to the short-run effects, the effect over the longer horizon is less concentrated in the non-tradables sectors and is instead more prominent in the high-skilled services sector.

Keywords: U.S. housing collapse, Housing Net-Worth, Housing wealth, Persistent employment effects, Regional analysis, Local labor markets, Financial crises, Sectoral effects

JEL Classification: E24, G01, R23

Suggested Citation

Bhattarai, Saroj and Schwartzman, Felipe and Yang, Choongryul, The Persistent Employment Effects of the 2006-09 U.S. Housing Wealth Collapse (2019-03-08). FRB Richmond Working Paper No. 19-7, Available at SSRN: https://ssrn.com/abstract=3361297

Saroj Bhattarai (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

Felipe Schwartzman

Federal Reserve Banks - Federal Reserve Bank of Richmond

Choongryul Yang

University of Texas at Austin ( email )

2225 Speedway
BRB 1.116, C3100
Austin, TX 78712
United States

HOME PAGE: http://https://choongryulyang.github.io

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