The Spatial and Distributive Implications of Working-from-home: a General Equilibrium Model (Job market paper)
Abstract: : Covid19 radically changed how and where we work by triggering the widespread adoption of working-from-home. This shift extended far beyond the period of the pandemic and can be interpreted as a structural change in the way we organise labour. This paper analyses the impact of remote work on consumption inequality through a novel real estate channel. The rise in work-from-home changed what households look for in a house by increasing the demand for space and reducing commuting costs. Consequently, it shifted the relative house prices and rents between suburbs and city centres. Who are the winners and the losers from such a real estate value reshuffling? What is the impact on consumption inequality? This study starts by presenting new empirical evidence on the impact of working-from-home on housing markets within UK metropolitan areas, highlighting a British ”Donut Effect”. Using granular property-level transaction and rental data, I set up a hedonic pricing model to highlight that households’ taste for space increased while the cost of commuting shrunk since the boom in remote work. I then incorporate this shift in housing demand into a rich general equilibrium, heterogeneous agents model of remote work and housing tenure augmented with city geography. Such a framework draws the direct link between the real estate assets that are subject to valuation changes and the households who own these assets. The first results suggest that the impact of remote work on consumption is ambiguous. Inequality grew at the bottom and shrunk at the top of the wealth distribution, implying polarizing consequences of working-from-home.
Abstract: : This paper assesses the role of types of labour contract on households’ consumption patterns over the Great Recession. It starts by presenting novel empirical evidence from Bank of Italy’s Survey of Households Income and Wealth. Over the Great Recession, households whose members were employed with a fixed-term or a temporary contract decreased their extensive margin of car consumption twice as much as households composed of permanent contract holders. This paper builds and calibrates a structural model of households’ saving and consumption behaviour augmented with types of contract. In the model, durable purchases are subject to a non-convex market friction. This framework is successful at replicating each type of contract’s consumption response during the Great Recession and provides a tool to break down consumption fluctuations between the households’ perceived risk channel and the realised income loss channel. The results suggests that the drop in the share of car buyers in the two groups is driven by different risk related mechanisms. Workers employed with permanent contracts adopt a ”wait-and-see” strategy, while workers in fixed-term employment adopt a ”wait-to-downgrade” approach. The heterogeneous nature of the risk faced by the two types of households has a strong implication for the persistence of durables’ demand contraction.
Work In Progress
Winners and Losers from Monetary Policy: Evidence from the UK Rental Market with Thomas Lazarowicz (slides available on request)
Abstract: This paper estimates the heterogenous effects of monetary policy across a novel dimension, housing tenure. Using microdata from one of the UK’s largest property rental and sales websites, we show that a contractionary shock to the policy rate leads to 1) an increase in rental prices and simultaneously 2) a fall in house prices. The granular microdata also allows us to demonstrate that a contractionary shock leads to a decrease in the listing rate of rental properties, suggesting that this heterogenous response across rents and house prices is not solely driven by household tenure decisions, but also by a rental supply channel. Finally, our identification approach does not lead to the typical ‘price puzzle’ found in many monetary VARs, suggesting that while contractionary policy lowers inflation, inflation incidence is heterogenous across housing tenure and implies a new distributional channel of monetary policy.