Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282660 
Year of Publication: 
2023
Series/Report no.: 
IZA Discussion Papers No. 16533
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
We study the effects on employment, costs of living, and income inequality of local shocks in the housing market or in the productivity of a tradable good. We construct a two-region search and matching model in which housing is considered a necessity good. Mobility of labor implies that any change in one region propagates into the other. The model is analytically tractable and provides some intuitive comparative statics results. We then calibrate the model on the basis of German data. Our simulations indicate that both types of shock produce limited employment gains but have a significant impact on housing prices and real income inequality: poorer, unemployed workers experience a larger increase in their cost of living index. This depends on the assumption of a non-homothetic utility function that generates a specific nominal wage to housing price positive relationship, partially safeguarding employed individuals against the rising cost of living.
Subjects: 
local labor markets
income inequality
costs of living
housing expenditures
housing prices
JEL: 
R23
R21
R31
J31
J61
J64
D31
Document Type: 
Working Paper

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