FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES House Lock and Structural Unemployment

The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System. ABSTRACT A recent decline in internal migration in the United States may have been caused in part by falling house prices, through the " lock in " effects of financial constraints faced by households whose housing debt exceeds the market value of their home. I analyse the relationship between such " house lock " and the elevated levels and persistence of unemployment during the recent recession and its aftermath, using data for the years 2008-11. Because house lock is likely to extend job search in the local labour market for homeowners whose home value has declined, I focus on differences in unemployment duration between homeowners and renters across geographic areas differentiated by the severity of the decline in home prices. The empirical analyses rely on microdata from the monthly Current Population Survey (CPS) files and an econometric method that enables the estimation of individual and aggregate covariate effects on unemployment durations using repeated cross-section data. I do not uncover systematic evidence to support the house-lock hypothesis. I also thank the editor and two anonymous referees for their comments. The views expressed in this paper are those of the author and should not be attributed to anyone else at the Federal Reserve Bank of San Francisco or the Federal Reserve System.