The Great Resignation Was Caused by the COVID-19 Housing Boom

52 Pages Posted: 25 Jan 2023 Last revised: 16 Feb 2023

See all articles by Jack Y Favilukis

Jack Y Favilukis

University of British Columbia (UBC) - Division of Finance

Gen Li

University of British Columbia (UBC) - Division of Finance

Date Written: January 24, 2023

Abstract

Following the Covid-19 pandemic, U.S. labor force participation declined significantly in 2020, slowly recovering in 2021 and 2022 -- this has been referred to as the Great Resignation. The decline has been concentrated among older Americans. By 2022, the labor force participation of workers in their prime returned to its 2019 level, while older workers' participation has continued to fall, responsible for almost the entire decline in the overall labor force participation rate. At the same time, the U.S. experienced large booms in both the equity and housing markets. We show that the Great Resignation among older workers can be fully explained by increases in housing wealth. MSAs with stronger house price growth tend to have lower participation rates, but only for home owners around retirement age -- a 65 year old home owner's unconditional participation rate of 44.8% falls to 43.9% if he experiences a 10% excess house price growth. A counterfactual shows that if housing returns in 2021 would have been equal to 2019 returns, there would have been no decline in the labor force participation of older Americans. To better understand these empirical findings, we build a life cycle model with realistic heterogeneity in wealth, income, and ownership status. We show that in response to a positive shock to house prices, owners reduce hours while renters increase hours, as in our empirical results.

Keywords: Great Resignation, Labor Force Participation, COVID-19, Housing Boom, Capital Gains, Retirement

JEL Classification: J21, J26, G11, G50, R30

Suggested Citation

Favilukis, Jack Y and Li, Gen, The Great Resignation Was Caused by the COVID-19 Housing Boom (January 24, 2023). Available at SSRN: https://ssrn.com/abstract=4335860

Jack Y Favilukis (Contact Author)

University of British Columbia (UBC) - Division of Finance ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Gen Li

University of British Columbia (UBC) - Division of Finance ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

HOME PAGE: http://www.gen-li.com

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