Housing market regulation and the social demand for job protection

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, the impact of min down-payment policies, regulations on the use of fixed-term contracts, the failure of a 2006 French reform of labor contracts, and feed-back effects from HMR to EPL.

► We document a positive relationship between Housing Market Regulation and Employment Protection. ► We provide a model rationalizing this correlation. ► We model HMR as a foreclosure cost and EP as a dismissal cost. ► The demand for job protection increases with the foreclosure cost. ► We use the model to explain the willingness of people to tax short-term.