Will the housing rebound crush the job market?June 4, 2013: 10:31 AM ET
A new study points to higher homeownership as the reason the unemployed aren't finding work.
FORTUNE -- For the past few years, economists have been waiting for the housing market to rebound so the job market can finally -- crash? Wait, no. It's the opposite. Right?
On Friday, we'll get the latest look at how the job market is doing. Hiring is improving, but the unemployment rate has stayed stubbornly high. The go-to explanation among economists has been the weak housing market. Where are all those construction workers going to find work? Nursing? (That's actually a pretty good idea.)
Housing prices are jumping again, and some people are even saying there's a new bubble. We've pointed out you shouldn't expect the economy to come roaring back just because the housing market is. But two economists are taking an even more extreme stance: that a good real estate market, where more people buy houses instead of rent, will throw more people out of work.
The paper by David Blanchflower of Dartmouth and Andrew Oswald of the University of Warwick titled "Does High Home-ownership Impair the Labor Market?", has been out for a month or so but was only published by the National Bureau of Economic Research on Monday. Among the findings:
- States with more homeowners, fewer renters, tend to have higher unemployment rates.
- It's not the homeowners that tend to make up the majority of the unemployed.
- So we really don't know why this happens. But it does, so there.
- Also, maybe homeowners are less likely to start new businesses, because property makes people lazy I guess.
That makes the study interesting for another reason. Not only are the authors saying the conventional wisdom of a weak housing market and a weak job market improving in tandem is wrong. But also the reason we say such things.
Most people believe the reason high homeownership in a housing bust creates stubbornly high unemployment is because the out of work can't afford to sell their houses -- they owe too much -- and move to an area of the country where their job prospects are better.
But Blanchflower and Oswald insist it's not the homeowners who are the unemployed, or at least the overwhelming majority of them. So the "trapped in a house" storyline doesn't work for them. Instead, they say homeownership creates a sort of economic rigidity that hurts the job market for everyone, but they don't say how.
Homeownership, though, was rising throughout the 2000s, and yet the unemployment rate dipped below 4% in the middle part of the decade. Would it have gone lower? It's only recently that homeownership seems to be holding us back.
Another funny thing about the study is that one of the first economists that Blanchflower and Oswald thank in the beginning of their paper is Dean Baker, co-founder of the Center for Economic and Policy Research and a prominent liberal economist. It's odd because Baker disagrees with Blanchflower and Oswald, which he says he told the two authors before they published the paper.
Blanchflower and Oswald touch on two prominent recent economic debates. First of all, whether we should be promoting and subsidizing homeownership. On that, Baker agrees with the authors that subsidies that push many people into houses, and the lax lending that comes with them, are a bad idea.
The second debate is the structural vs. cyclical debate about the job market. On that, they're split. Baker believes that we are in a cyclical downturn and more stimulus will help the job market. The authors, however, seem to be siding with people who think there have been other things going on with the economy, like a rise in homeownership, that will make it very tough for the unemployment rate to fall.
Baker's own research suggests the housing bust has had little effect on worker mobility, and, in general, is hard to pin down as the real reason for high unemployment, other than in construction or other jobs directly related to housing. People still move for new job opportunities. They just leave with less.
To be fair to the authors, they don't say that a jump in home buying will immediately lead to a rise in unemployment. The effect develops with a lag. But the lag is also the problem with the paper.
In places were the economy is weak, renters tend to flee because it is easiest for them to do so, leaving high rates of homeownership behind. In areas were the economy is strong, workers show up, and many don't immediately buy a house. That could explain why Blanchflower and Oswald get the results they do. Michigan, for example, shows up as a high homeownership state and a high unemployment state, and the two don't necessarily go hand in hand.