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.
We use cookies to provide you with an optimal website experience. This includes cookies that are necessary for the operation of the site as well as cookies that are only used for anonymous statistical purposes, for comfort settings or to display personalized content. You can decide for yourself which categories you want to allow. Please note that based on your settings, you may not be able to use all of the site's functions.
Cookie settings
These necessary cookies are required to activate the core functionality of the website. An opt-out from these technologies is not available.
In order to further improve our offer and our website, we collect anonymous data for statistics and analyses. With the help of these cookies we can, for example, determine the number of visitors and the effect of certain pages on our website and optimize our content.