Working Paper: CEPR ID: DP7845
Authors: Bruno Decreuse; Tanguy Van Ypersele
Abstract: Controlling for country fixed effects, there is a positive and statistically significant relationship between the degree of housing market regulation (HMR) and the strictness of employment protection legislation (EPL) in OECD countries. We provide a model in which HMR increases foreclosure costs in case of mortgage default, while EPL raises the administrative cost of dismissal. Owing to banks lending behavior, individuals' demand for job protection increases with the cost of foreclosure. We use the model to discuss social housing and family insurance, the case for mortgage unemployment insurance, regulations on the use of fixed-term contracts, the impact of min down-payment policies, feed-back effects from HMR to EPL, and the failure of a 2006 French reform of the labor contracts.
Keywords: fixed-term contracts; foreclosure costs; job protection
JEL Codes: G2; K31; R2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| HMR increases foreclosure costs (R31) | Increased social demand for job protection (J29) |
| Housing Market Regulation (HMR) (R31) | Employment Protection Legislation (EPL) (K31) |
| Lagged Housing Market Regulation (HMR) (R31) | Current Employment Protection Legislation (EPL) (K31) |
| EPL responds to lagged HMR (C22) | Current Employment Protection Legislation (EPL) (K31) |
| Current Housing Market Regulation (HMR) (R31) | Current Employment Protection Legislation (EPL) (K31) |