DP268 Housing, Wages and UK Labour Markets

Author(s): Olympia Bover , John Muellbauer , Anthony Murphy

Publication Date: July 1988

Keyword(s): House Prices , Housing Tenure , Labour Markets , Labour Mobility , Unemployment , Wage Determination

JEL(s): 821 , 824 , 932

Programme Areas: Applied Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP268.asp

There is a considerable literature concerning the effects on labor mobility of imperfections in United Kingdom markets for rented housing (such as the 1987 book by Minford et al. and several articles by Hughes and McCormick). This paper examines the interaction of labor and housing markets, including the owner-occupied sector, in a more general framework. Our analysis has implications for the behavior of aggregate wages in the UK and for the relationship between aggregate unemployment and unfilled vacancies, which in part reflects mismatch between jobs and people. Our empirical analysis reveals that lagged values of regional differentials in the ratio of house prices to earnings play an important role in both the wage and the unemployment/vacancies equations. In addition, lagged values of average house prices have a significant 'cost-of-living' effect on wages. Our evidence is consistent with cross-sectional evidence on the effects of tenure structure on mobility; we find some effects from the 1965 and 1974 Rent Acts.