Journal
ECONOMETRICA
Volume 82, Issue 6, Pages 2197-2223Publisher
WILEY-BLACKWELL
DOI: 10.3982/ECTA10451
Keywords
Great Recession; employment; household debt; new worth; house prices
Categories
Funding
- National Science Foundation
- Initiative on Global Markets at the University of Chicago Booth School of Business
- Center for Research in Security Prices
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We show that deterioration in household balance sheets, or the housing net worth channel, played a significant role in the sharp decline in U.S. employment between 2007 and 2009. Counties with a larger decline in housing net worth experience a larger decline in non-tradable employment. This result is not driven by industry-specific supply-side shocks, exposure to the construction sector, policy-induced business uncertainty, or contemporaneous credit supply tightening. We find little evidence of labor market adjustment in response to the housing net worth shock. There is no significant expansion of the tradable sector in counties with the largest decline in housing net worth. Further, there is little evidence of wage adjustment within or emigration out of the hardest hit counties.
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