Does Home Ownership Drive Unemployment?: A Public Lecture with Andrew Oswald

Andrew Oswald at CERGE-EI

 

Unemployment is a major source of misery in modern society. It is also plainly a waste of resources. So it is perhaps no surprise that macro and labor economists are obsessed with explaining the phenomenon. But are they searching in the wrong place for answers? Professor Andrew Oswald (Warwick University) said at his public lecture at CERGE-EI that he thinks they are, and that he may have found a key.

According to Oswald, economists have typically looked for answers “too close to the source.” Standard explanations have focused on the impact of trade unions, over-generous unemployment benefits, and inflexible labor markets. Yet policies meant to address these issues have made only minor dents on unemployment levels.

Professor Oswald ventured to propose a radically different explanation for the persistent unemployment we observe across developed countries. According to his research, the level of homeownership within an economic area can largely explain the level of unemployment. Few economists have explored this rather unintuitive notion, but as Oswald noted, it is typical for experts to overlook deep structural forces in favor of more immediate explanations.

But how does homeownership negatively impact employment? Oswald considers three possibilities. The first is that higher homeownership lowers geographical mobility. By reducing the flexibility to move between locations, homeownership reduces workers ability to relocate to places where their knowledge and skills may be put to better use. The second possibility is that homeownership contributes to urban sprawl and lower-density housing. Long commuting times and congestion hamper economic activity and efficiency.

Finally, Oswald points out that homeownership directly relates to the ‘Not in My Back Yard’ problem (NIMBY). Homeowners often oppose new productive development projects because they perceive the projects as having negative external effects on their neighborhood. Residents can often team up in homeowners’ unions to block projects from being realized. Even though they often agree that those developments are needed in society, they do not want the development to take place in their ‘back yard.’ As such, NIMBY blocks productive economic activity and development from taking root.

Pondering how a lake becomes filled with water, primitive man would have concluded that it collects the rain falling from the sky. He could not have imagined that hidden streams of water deep underground are the true source. Andrew Oswald’s proposition—that homeownership is the underlying cause of long-term unemployment—is also hidden from sight, but that certainly doesn’t mean it’s not there.

The CERGE-EI Public Speaker Series invites leading international scholars to Prague to present their ideas and engage in public discussion. Learn about upcoming CERGE-EI events here.

What’s a Good Teacher Worth? A CERGE-EI Public Lecture by Eric Hanushek

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“Economic growth is a function of education, period.”  During his public lecture at CERGE-EI, Professor Eric Hanushek emphasized the enormous impact that human capital (i.e. education) has on long-term economic development.  A renowned scholar in educational research, Professor Hanushek (Stanford University) used this link between education and development to make a compelling argument for improving the quality of instructors.

Prof. Hanushek began his lecture from a distance and gradually brought the audience ‘closer to earth.’ From the furthest vantage point, he established the unambiguous link between economic growth and test scores (i.e. what students know). A graph plotting test scores and economic growth revealed a nearly perfect correlation for a wide sample of countries over the past five decades. To Prof. Hanushek, the data screams loud and clear that imparting knowledge and skills through the educational system is the most potent means by which countries successfully grow.

Growth and test scores

Unfortunately, raising test scores is not so simple. Students may be required to attend school, and governments spend a great deal to make this happen, but merely sitting in a classroom with a teacher is not enough to guarantee meaningful learning. The question, then, is how to ensure that students learn while they sit in those classrooms.

According to Prof. Hanushek, research on student achievement has identified that good teachers play the essential role. In economic terms, how much can a good teacher contribute to economic growth? He showed that a top teacher with a class of 30 students will boost the cumulative lifetime income of that classroom group by over $800,000. Of course the inverse of this relationship also exists: lousy instruction from the worst teachers will damage their students’ earnings by a similar magnitude.

Removing the worst teachers and replacing them with average ones could contribute to large gains in test scores—and as Hanushek already demonstrated, higher test scores should directly contribute to long-term economic growth. Analyzing the Czech Republic and making conservative assumptions about teacher quality, he showed that removing the bottom 5% of teachers and replacing them with average instructors could lift the country’s test scores to the level of Finland. This in turn would add 110 trillion euros to the Czech Republic’s GDP over the next 80 years (in present value worth).

Eric Hanushek Lecture

Considering the enormous impact that good teachers can have on student achievement and economic growth, the focus on improving teacher quality should be paramount. Unfortunately, solutions to improve teacher quality are often misguided and ineffective.

Rather than focus on a teacher’s educational credentials, experience, or training, Prof. Hanushek proposed solutions that work with incentives and focus on outcomes.  He suggested methodically measuring testing outcomes and rewarding teachers for achieving defined objectives. He was also dismissive of those who see technology as a silver bullet. Accountability and performance rewards can be far more effective than giving students iPads.

Check out the full lecture below:

Moving On: Recent CERGE-EI Graduates Take Impressive Job Posts

The past three months have been busy ones at CERGE-EI. Since the beginning of June, six CERGE-EI PhD candidates have successfully defended their theses and received their Doctorate in Economic Science. This enormous personal achievement is the culmination of years of hard work, dedication, and an endless thirst for knowledge. It is the pride of the whole CERGE-EI community to recognize these newly minted alumni and commend them for their stellar work and passionate commitment to their studies. They are: Anna Bogomolova, Martin Kuncl, Gurgen Aslanyan, Pavla Vozárová, Sherzod Tashpulatov, and Dragana Stanišić.

With their CERGE-EI doctorate in hand, several of these talented young minds have already secured jobs at impressive institutions across the world:

Martin Kuncl is working as a Senior Analyst at the Bank of Canada. His post is in the Macro-Financial Studies Division of the Canadian Economic Analysis Department.

Gurgen Aslanyan has taken a post as a lecturer at the Dilijan Research and Training Centre of the Central Bank of the Republic of Armenia.

Pavla (Nikolovová) Vozárová is an Assistant Professor at the Czech Technical University (ČVUT). She is working in the Department of Software Engineering at Faculty of Information Technology.

Dragana Stanišić is working at Accenture, a multinational management consulting firm. She will work as a Research Specialist for Growth and Strategy.

Anna Bogomolova is an assistant professor at the Economics Faculty of Novosibirsk State University.

Learn even more about where CERGE-EI graduates are working here.