Negative Home Equity and Household Labor Supply
72 Pages Posted: 14 Dec 2015 Last revised: 6 Jan 2021
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: Suggested Citation