The risk of job loss, household formation and housing demand: evidence from differences in severance payments
Series: Working Papers. 1849.
Author: Cristina Barceló and Ernesto Villanueva.
Topics: Quantitative methods | Regional analysis | Spanish Survey of Household Finances | Labour market | Health, education and welfare .
Full document
Abstract
Recent cohorts in various developed countries take a longer time to form their own
household and display lower rates of home ownership than older cohorts. Previous
literature has linked these developments to higher job instability, especially among youths.
We exploit the large differences in firing costs across contract types in the Spanish
labor market to identify the causal link between sharp changes in the risk of job loss
and the timing of different forms of household formation among youths. Our identification
strategy uses variation in regional incentives for firms to promote high firing cost contracts
between 1997 and 2009. Using data from the 2002-2014 waves of the Spanish Survey
of Household Finances, we document that an increase of 1% in the stock of workers with
an open-ended contract increases the probability of forming a new household by a similar
magnitude (especially through renting new accommodation). The results are consistent
with the predictions of precautionary saving models, whereby individuals exposed to the
risk of job loss postpone their consumption of housing services.