New England Public Policy Center Working Paper No. 09-2
by Jeffrey Zabel, Tufts University

The United States is known for the ability of its residents to move to where the jobs are, and this has helped the nation maintain its position as the world’s top economy.  Households’ decisions to move depend not only on job prospects but also on the relative cost of housing.  I investigate how the housing market affects the flow of workers across cities.  This occurs through at least two channels: the relative mobility of homeowners versus renters, and the relative cost of housing across markets.  I use homeownership rates to measure the former, and use an index that measures house prices across metropolitan statistical areas (MSAs); the price elasticity of housing supply; and the growth rate of house prices to capture the latter.

To show how variation in these factors affects cross-city migration, I estimate a VAR model of migration, employment, wages, house prices, and new housing supply using data from 277 U.S. MSAs for 1990–2006.  The impulse response functions based on employment supply and demand shocks show substantial variation when evaluated at different values of the homeownership rate, the price elasticity of housing supply, relative housing prices, and their growth rates.  I also allow for spillover effects in the model that reflect the impact of a labor demand shock in the nearest city.

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