Cross-country evidence on the link between job security and housing credit

Abstract

This paper investigates the relationship between job security and housing credit, specifically the contradiction between employment insecurity and take up of housing credit-the former being the main reason for income uncertainty and the latter necessitating long-term commitment. It is argued that higher employment protection can increase demand for housing due to its mitigating impact on uncertainty about workers' future income streams. Using yearly data for 23 countries from 1990 to 2016, the empirical analysis suggests a positive relationship between job security and housing credit at the aggregate level. A key implication is that it is crucial to provide sufficiently paid and secure employment that will enable households to fulfill their long-term commitment to creditors to meet housing demand through the financial intermediation channel. Moreover, higher job security could mitigate income and wealth inequality, and decrease the size and duration of financial shocks due to increasing debt repayment capacity during stressful times.