Working Paper: NBER ID: w25466
Authors: Steven J. Davis; John C. Haltiwanger
Abstract: We estimate the effects of house price changes on young-firm employment shares and industry- level employment growth in local economies. A novel test shows that house price effects on local economies work through wealth, liquidity and collateral effects on the propensity to start new firms and expand young ones. Aggregating local effects to the national level, our estimates imply that housing market ups and downs play a major role – as transmission channel and driving force – in medium-run fluctuations in young-firm employment shares in recent decades. We also find a distinct and smaller role for locally exogenous loan-supply shifts.
Keywords: young firms; housing markets; credit conditions; employment shares
JEL Codes: E2; E3; E5; G2; J2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local real housing prices (R31) | local young-firm employment share (J69) |
| small business bank loan supply shocks (G21) | young-firm activity shares (L26) |
| housing price changes (R31) | young firms (M13) |
| local industry growth responses to housing price changes (R38) | local industry's young-firm employment share (L26) |