Labor market institutions and homeownership - Winner of Swiss Society of Economics and Statistics Young Economist Award 2018 - (submitted)
This paper studies to what extent labor market institutions can explain homeownership rate differences over time and across countries. Using panel data from 19 OECD countries over the period 1965-2014, I find empirical evidence that employment rigidities are positively correlated with homeownership, whereas real wage rigidities are negatively correlated with homeownership. The empirical findings are rationalized through a DSGE model with labor rigidities, and search and matching frictions, where heterogeneous households face a housing tenure decision. Labor market frictions affect housing tenure choice through their impact on employment and wage volatility. The housing market is directly linked to labor rigidities via an endogenous credit constraint. Performing counter-factual analyses, I find that labor market institutions account for a relevant share of the difference in homeownership between countries and over time. I also show that labor reforms which reduce unemployment benefits can dampen the effect of policies targeted to increase homeownership.
We study whether labor market institutions not targeted to maternity impact the total fertility rate (TFR). We distinguish between unemployment rigidities (UR) and real wage rigidities (RWR), since the former reduces and the latter amplifies the response of the business cycle to shocks. Panel regressions and principal component analysis reveal that UR, such as employment protection and union strength, increase TFR. On the other hand, RWR, proxied by the centralization of wage bargaining and unemployment benefits reduce TFR. We also find evidence that unemployment volatility reduces fertility whereas wage volatility raises fertility. Thus, to the extent that labor market institutions affect unemployment and wage volatility, they may also affect fertility. We complement our analysis with a DSGE model that incorporates households’ fertility decision as well as unemployment and wage rigidities. We find that downward wage rigidities amplify real contractions in response to negative demand shocks and lead to large drops in employment and fertility.
Public debt and crowding-out of lending: the role of housing wealth (with Marta Giagheddu, Johns Hopkins SAIS) - draft coming soon!
We investigate the role of housing for the impact of a hike in sovereign debt risk during a recession in a country without access to foreign liquidity. We build a general equilibrium model with housing and heterogeneous agents who differ in their saving and investment opportunities. Financial frictions operate as a transmission mechanism, as households’ collateralised debt links sovereign debt with the real economy, through interest rate and housing prices. We find that the more concentrated wealth is (i.e. smaller number of savers) the worse aggregate recession is, but the more redistribution is allowed by the financial system. This is because a higher saving rate also increases liquidity in the system improving borrowers’ possibilities to smooth their consumption. We also show that a similar positive effect across agents can be obtained at different levels of inequality via macroprudential policies, such as financial repression.
Work in progress:
Investment choices and wealth inequality: evidence from Italy
This paper uses micro-data from the Bank of Italy Survey of Household Income and Wealth to investigate the drivers of net wealth inequality dynamics in Italy during the Great Recession. Understanding the sources of wealth inequality is important from a welfare perspective, since different causes may have different implications and may call for different policy interventions. I analyse the evolution of wealth components across the wealth distribution and I use Gini index decomposition to assess the relevance of each wealth component for total inequality. I show that a large part of wealth dynamics in Italy during the Great Recession was driven by the evolution of real estate. I document that the Gini index for net wealth increased significantly between 2008 and 2012 and decreased between 2012 and 2014. The evolution is very similar for the Gini index for real estate. I find that the increase in inequality observed in Italy between 2008 and 2012 cannot be attributed to changes in the relative contribution of each wealth component, but more likely to the rise of real estate shares hold by households in the top of the wealth distribution. The reduction in inequality observed after 2012 instead, can be related to changes in the share of real estate, but also to a shift between the relative importance of other real assets and financial assets.