Homeownership and Labour Market Behaviour: Interpreting the Evidence

This paper attempt to explain for the repeated empirical finding that homeowners have shorter unemployment durations than tenants. On the basis of Oswald’s hypothesis, however, researchers would expect to find longer unemployment durations for homeowners. But the search models that have been proposed to motivate this thesis have difficulties in providing an explanation for the reverse effect. The model proposed in this paper is close to the ones proposed earlier, in that it also studies search behaviour, but contains a richer set of effects of homeownership on search behaviour. In our model, homeowners may have a higher intensity of job search (and hence shorter unemployment durations) when their housing expenses are – all other things being equal, higher than those of tenants. Some studies have indeed found that the shorter unemployment durations occur especially among highly leveraged homeowners. We show that, in the Netherlands, many homeowners have higher housing costs than otherwise comparable tenants. The model developed in this paper is therefore able to explain the existing evidence of shorter unemployment durations for Dutch homeowners.