Duration of unemployment in the EU: A re-evaluation of the Oswald thesis

The ‘Oswald thesis’ proposed that the housing market was ‘at the heart of the European unemployment problem’ and made strong claims that ‘We can put Europe back to work . . . by reducing home ownership’ (Oswald, 1999, p. 1).  It is based on the view that labour mobility is lower for owner occupiers than for renters as the higher removal expenses lead to a disincentive for workers to move to areas where jobs are more abundant.  As a consequence there is a mismatch between vacancies and the unemployed within a country and between nations.  The supporting evidence for the thesis comes from macro-level data.

This research will investigate the interaction of the labour markets and the housing systems within countries in the EU in an attempt to identify in the determination of unemployment.  Conventional labour market factors, like the replacement ratio and trade union power, will be considered alongside variables from national housing markets, for example house price variation and mortgage availability. Rather than just following Oswald and considering owner-occupation rates, we will capture the institutional features of the housing system of each country and examine how they impact on the operation of labour markets, in particular the cost of relocating for home owners, the function of mortgage markets and the taxation system.  By re-evaluating the hypothesis by using macroeconomic data, we will hopefully dispel the myths that have grown up around the Oswald hypothesis.    

It is envisaged that the sample period will range from 1980 to 2010 and will include observations from the recession emanating from the global financial crisis and the recent Euro crisis. In this respect, we will be examining whether the housing market has been a contributing factor to any increase unemployment in the European Union, more particularly the duration of unemployment in each country.  If possible, the analysis will take place within a pooled framework to capture the time invariant aspects of the housing and labour market in each EU economy.

The results may provide suggestions as to the policies that could be adopted to reduce unemployment in the EU, particularly the development of long-term unemployment.   

JEL: J64, O52, R23