We document that the recovery of workers’ earnings, wages, and labor supply after a job separation is affected by housing characteristics. Homeowners suffer larger and more persistent earning losses than renters, and losses increase on home equity availability and decrease on housing payments. To rationalize our findings, we propose an island search model with endogenous savings and housing decisions, where human capital dynamics depend non-trivially on workers’ job status. The calibrated model recreates the larger unemployment scar for homeowners through different channels: an initial higher fall off the job ladder due to human capital decay while unemployed, an intensive use of home equity to smooth consumption, a pickier attitude towards reemployment, and lower migration to better job markets.
Eva de Francisco 