Highlights :

• Using property taxes as an instrument for house prices, we show the causal effect of house prices on unemployment dynamics across time and countries.
• A 10% appreciation in house prices yields to a 3.4% decrease in the unemployment rate.
• If house prices drive employment fluctuations in construction, they impact also total employment through their effects on labour demand.
• Housing booms impact specifically the tradable sector as they lead to real exchange rate appreciations that affect manufacturing activity.

 Abstract :
We investigate the causal effect of house price movements on unemployment dynamics. Using a dataset of 34 countries over the last 40 years, we show the large and significant impact of house prices on unemployment fluctuations using property taxes as an instrument for house prices.  A 10% (instrumented) appreciation in house prices yields to a 3.4% decrease in the unemployment rate. These results are very robust to the inclusion of the variables commonly used to explain unemployment rate developments. If house prices directly impact employment in construction, job volatility in this sector resulting in large employment fluctuations, they impact also total employment through their effects on non-residential investment and consumption, two determinants of labour demand. Housing booms have a specific effect on employment in the tradable sector as they lead to real exchange rate appreciations that affect manufacturing activity.

 Keywords : Unemployment | House Prices

 JEL : J60, E29, R32