Eva de Francisco

Joaquin Garcia-Cabo and I just finished our latest paper “The drag of homeownership on the unemployment scar”. In it, we document that homeowners suffer larger and more persistent earnings losses than renters, and losses increase on home equity and decrease on housing payments. To rationalize our findings, we build an island job search model, where human capital dynamics depend on workers’ job status. Homeownership provides higher housing services than renting and increases collateral, but requires a down payment and is subject to selling costs. The calibrated model delivers larger earnings losses for homeowners mainly through higher fall off the job ladder and human capital decay. However, the slower earnings recovery is optimal, as home equity allows for consumption smoothing. Listen to the AI generated podcast about it ! Wow!