Homeownership and labor market outcomes: disentangling externality and composition effects

While homeownership and unemployment rates are positively related (Oswald, 1996), owners generally have better labor market outcomes. This paper addresses this paradox, disentangling a composition effect and a negative externality. On the one hand, if owners are less likely to be unemployed than renters, a higher homeownership rate should mechanically translate into a lower unemployment rate through a composition effect. On the other hand, extended homeownership may generate a negative externality in the form of frictions impeding matching on the labor market. We carry out estimations at the individual and aggregate levels, using the French Census on a large time span (1968-2011) and interpret the results within a job matching model featuring a composition effect and a negative externality. In the French case, the latter outweighs the former and the homeownership rate is positively correlated with the unemployment rate. Finally, a 10 points rise in the local homeownership rate would be associated to frictions increasing unemployment by around 1 point.