Labor Demand Shocks and Housing Prices Across the United States: Does One Size Fit All?

Abstract

This study examines whether effects of labor demand shocks on housing prices vary across time and space. Using data on 321 U.S. metropolitan statistical areas (MSAs), the authors estimate the medium- and long-run effects of increases in MSA-level employment and total labor income on housing prices. Instrumental variable estimates for different time periods, and also for coastal, noncoastal, large, and small metropolitan statistical areas, are obtained using the shift-share instrument. Results suggest that labor demand shocks have positive effects on housing prices; however, these effects appear to vary across time periods and across different types of MSAs.

Heterogeneity in the local employment multipliers in the United States

“…4 Table 3 summarizes the reduced form of results for coastal and noncoastal MSAs across different periods. MSAs with significant restrictions on housing prices tend to experience faster housing price appreciation that may, through household migration, partially offset the positive employment effect (Osei & Winters, 2019;Saiz, 2010). All the OLS coefficients are positive and statistically significant at the 1% level.…”

“…The general equilibrium effects of labor demand shocks may differ in space since geographic areas differ along many dimensions such as land use and housing supply restrictions (Bartik, 2015;Martin, 2012;Notowidigdo, 2011;Saiz, 2010). For example, areas with severe restrictions on housing supply tend to experience higher housing price appreciation than regions with less rigid restrictions (see, e.g., Glaeser, Gyourko, & Saks, 2006;Osei & Winters, 2019;Saks, 2008). The differential general equilibrium effect can affect the magnitude of the local multiplier.…”

“…These suggestive differences in coefficients may be due to housing price elasticity. MSAs with significant restrictions on housing prices tend to experience faster housing price appreciation that may, through household migration, partially offset the positive employment effect (Osei & Winters, 2019;Saiz, 2010). MSAs differ in productivity, industry composition, and skills distribution.…”

“…This paper focuses on the effect of an exogenous increase in employment in the tradable sector on employment in the nontradable sector. However, such a labor demand shock is likely to have general equilibrium effects of increasing local housing prices, wages, and prices of other local services (Adelino, Schoar, & Severino, 2015;Fort, Haltiwanger, Jarmin, & Miranda, 2013;Moretti, 2010;Osei & Winters, 2019;Zabel, 2012). A positive labor demand shock to the tradable sector due to the entry of new companies or an expansion of existing companies has direct benefits to the local economy, as it creates new well-paid jobs in the tradable sector, and an indirect benefit, as it generates additional jobs in the nontradable sector through increased demand for local goods and services.…”

“…For example, following Amazon's recent decision to locate in Arlington, Northern Virginia, Fuller and Chapman (2018) found a Virginia employment multiplier of 1.94, suggesting that, this decision would have a significant employment impact on Virginia's economy. However, such a labor demand shock is likely to have general equilibrium effects of increasing local housing prices, wages, and prices of other local services (Adelino, Schoar, & Severino, 2015;Fort, Haltiwanger, Jarmin, & Miranda, 2013;Moretti, 2010;Osei & Winters, 2019;Zabel, 2012). These general equilibrium effects may reduce the local employment multiplier effect.…”