Negative Home Equity and Household Labor Supply

72 Pages Posted: 14 Dec 2015 Last revised: 6 Jan 2021

See all articles by Asaf Bernstein

Asaf Bernstein

University of Colorado at Boulder; National Bureau of Economic Research (NBER)

Date Written: January 5, 2021

Abstract

I find that negative home equity causes a 2%-6% reduction in household labor supply. I utilize U.S. household-level data and plausibly exogenous variation in the location-timing of home purchases with a single lender. Supporting causality, households are observationally equivalent at origination and equally sensitive to local housing shocks that don’t cause negative equity. Results also hold comparing purchases within the same year-MSA, that differ by only a few months. Though multiple channels are likely at work, evidence of non-linear effects is broadly consistent with costs associated with housing lock and financial distress.

Keywords: debt overhang, housing lock, labor supply, household income, household finance, mortgage modifications, negative equity, home equity

JEL Classification: E44, G21, L85, R20, D10, J22

Suggested Citation

Bernstein, Asaf, Negative Home Equity and Household Labor Supply (January 5, 2021). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2700781 or http://dx.doi.org/10.2139/ssrn.2700781

Asaf Bernstein (Contact Author)

University of Colorado at Boulder ( email )

Campus Box 419
Boulder, CO 80309
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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