Income or Wealth: Low Productivity Workers Double Bounty Problem
About this Session
Time
Thu. 16.04. 15:55
Room
Postersession
Speaker
by Enrico Benassi
Housing increasingly shapes socio-economic and political outcomes across advanced economies. Labour market outsiders, characterised by lower earning potential and unstable employment, face mounting difficulties in accessing homeownership. Paradoxically, however, the most attractive labour markets often report higher tenant-to-mortgagor ratios, raising questions about how income opportunities and housing access interact. This paper aims to address this puzzle by examining not only how labour market performance influences housing access, but also how housing shapes income opportunities. Conceptualising housing simultaneously as a geographically embedded real asset and as a globally tradable financial asset, a formal theoretical model shows that workers with lower wage potential face a structural trade-off between access to housing wealth or higher earning realization. Two mechanisms drive these results. First, spatially, lower rent-to-value ratios in thriving labour markets make renting relatively more attractive across top performing economic areas. Second, financially, low-paid workers who purchase face disproportionately high debt burdens that constrain their labour market bargaining power and matching efficiency. These dynamics are tested empirically using the UK as a most-likely case setting. The analysis explores earnings evolution after mortgage acquisition and compares how tenancy versus mortgaged tenure are associated with income realisation. Moreover, EU-SILC data for European countries, and the US PSID, allow to replicate the cross-sectional analysis across countries suggesting some external validity of the proposed framework. The main findings corroborate the proposed hypothesis of a trade-off between income realization and access to mortgaged homeownership among low wage potential workers. While workers at the top enjoy a positive association between earnings levels and mortgaged ownership compared to tenants, these results do not hold – and even turn negative – among workers at the bottom. These findings suggests the emergence of four distinct social stratification groups: top performers, who combine high incomes with housing wealth; aspirational owners, who benefit from high earnings and may access homeownership as they increase their wage potential; income protectors, who prioritize labour market access, but remain excluded from housing wealth; and wealth builders, whose housing positions is taken against the backdrop of weaker labor market access. These typologies might be considered to uncover valuable insights into housing role shaping labour market segmentations, social mobility, voting patterns, and growth regimes dynamics.
Housing increasingly shapes socio-economic and political outcomes across advanced economies. Labour market outsiders, characterised by lower earning potential and unstable employment, face mounting difficulties in accessing homeownership. Paradoxically, however, the most attractive labour markets often report higher tenant-to-mortgagor ratios, raising questions about how income opportunities and housing access interact. This paper aims to address this puzzle by examining not only how labour market performance influences housing access, but also how housing shapes income opportunities. Conceptualising housing simultaneously as a geographically embedded real asset and as a globally tradable financial asset, a formal theoretical model shows that workers with lower wage potential face a structural trade-off between access to housing wealth or higher earning realization. Two mechanisms drive these results. First, spatially, lower rent-to-value ratios in thriving labour markets make renting relatively more attractive across top performing economic areas. Second, financially, low-paid workers who purchase face disproportionately high debt burdens that constrain their labour market bargaining power and matching efficiency. These dynamics are tested empirically using the UK as a most-likely case setting. The analysis explores earnings evolution after mortgage acquisition and compares how tenancy versus mortgaged tenure are associated with income realisation. Moreover, EU-SILC data for European countries, and the US PSID, allow to replicate the cross-sectional analysis across countries suggesting some external validity of the proposed framework. The main findings corroborate the proposed hypothesis of a trade-off between income realization and access to mortgaged homeownership among low wage potential workers. While workers at the top enjoy a positive association between earnings levels and mortgaged ownership compared to tenants, these results do not hold – and even turn negative – among workers at the bottom. These findings suggests the emergence of four distinct social stratification groups: top performers, who combine high incomes with housing wealth; aspirational owners, who benefit from high earnings and may access homeownership as they increase their wage potential; income protectors, who prioritize labour market access, but remain excluded from housing wealth; and wealth builders, whose housing positions is taken against the backdrop of weaker labor market access. These typologies might be considered to uncover valuable insights into housing role shaping labour market segmentations, social mobility, voting patterns, and growth regimes dynamics.