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Local scars of the US housing crisis

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  • Bhattarai, Saroj
  • Schwartzman, Felipe
  • Yang, Choongryul

Abstract

The 2006–09 US housing crisis had scarring local effects. For a given county, a housing shock generating a 10% reduction in housing wealth from 2006 through 2009 led to a 4.4% decline in employment by 2018 and a commensurate decline in value added. This persistent local effect occurred despite the shock having no significant impact on labor productivity. The local labor market adjustment to the housing shock was particularly costly: local wages did not respond, and long-run convergence in the local labor market slack instead took place entirely through population losses in affected regions. Moreover, the 2002–06 housing boom does not generate significant employment gains, indicating that the employment losses relative to 2006 are also losses relative to the counterfactual case in which there was no housing cycle.

Suggested Citation

  • Bhattarai, Saroj & Schwartzman, Felipe & Yang, Choongryul, 2021. "Local scars of the US housing crisis," Journal of Monetary Economics, Elsevier, vol. 119(C), pages 40-57.
    • Handle: RePEc:eee:moneco:v:119:y:2021:i:c:p:40-57
    DOI: 10.1016/j.jmoneco.2021.02.001
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    More about this item

    Keywords

    US housing collapse; Scarring effects; Persistent regional effects; Local labor market slack; Downward wage rigidity;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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