Orginally Published - 30 March 1998
With more than 20 million of their citizens unemployed, Europe's politicians are searching for radical ideas. Andrew Oswald, Professor of Economics at The University of Warwick, suggests one in his paper A Conjecture on the Explanation for High Unemployment in the Industrialised Nations.
Professor Oswald points out that the countries with the most unemployment, like Spain and Finland, have the highest proportion of home owners. Countries with the least joblessness, like Switzerland and Holland, have the least home ownership and thriving private rental markets.
Moreover, the nations that have seen the fastest growth in home ownership since the 1960s have witnessed the greatest increase in unemployment. In addition, Professor Oswald finds, the same relationship holds across regions within countries. High-unemployment Northern Ireland, for example,has the smallest proportion of private renters in the UK.
The theory is quite easy to understand. Having plenty of rental housing in a country helps people move around. That mobility of labour then gets the right workers into the right job slots, which keeps down structural unemployment. If most people are home-owners or council tenants, by contrast, it is difficult and costly for them to take jobs elsewhere. The result is an ossified labour market.
Professor Oswald says:
These ideas may seem surprising at first sight, but they are just common sense. It is easy for renters to move around the country to find work. Home-owners and council-house tenants find it slower and more difficult. Western governments' actions have systematically killed off what used to be a large private rental housing market. This has probably been a mistake: it has made labour markets work less efficiently and led to more unemployment.
Britain fits the evidence, though it is currently passing through a cyclical boom. In the 1950s, most British people - around 60% - were private tenants. Now hardly anyone rents privately -- the figure is less than 10%. Over that period, unemployment has more than doubled from what used to be a regular two and half per cent.
The only countries to escape a major post-war rise in unemployment have been Japan, the US and Switzerland. Consistent with the theory, these have seen no increase in home ownership.
Professor Oswald does not believe that housing is the sole reason for the Western countries' problems, and calls his paper a conjecture. But his findings suggest large effects. Using information from twenty nations, Oswald estimates that on average every additional 10 percentage points on home ownership puts 2 percentage points on the unemployment rate.
For further details please contact:
Professor Andrew Oswald
Department of Economics
University of Warwick, Coventry CV4 7AL, UK
Tel: 01203 523510 (Office), 01367 860005 (Home)