Labour Market Fluctuations and the Housing Net Worth Channel in the EU

The credit-driven housing net worth channel has been identified as a determinant of the sharp drop in US employment between 2007 and 2009. We examine the impact of this channel on the labour market in the EU using panel data for 20 countries covering the period 1996 to 2017. This period saw substantial changes in both credit provision and labour market performance in the EU. The full sample results show changes in housing net wealth having a significant influence on total employment and its traded and non-traded components, with a one per cent change in housing net wealth being associated with about a 0.2 per cent change in total employment. Coefficient values are larger when changes in non-traded employment are the dependent variable, while the wealth effect is greater when negative housing net wealth shocks occur. In contrast to the US evidence, we find significant wage responses to housing net worth shocks arising in the EU.