Academic journal article Real Estate Economics

The Effect of Residential Crowding on Labor Productivity with Evidence from the Twilight of Polish Socialism

Academic journal article Real Estate Economics

The Effect of Residential Crowding on Labor Productivity with Evidence from the Twilight of Polish Socialism

Article excerpt

Low per capita housing stock is a common problem in many economies, having arisen due to either government policies or short-run constraints. For example, low per capita housing has been induced by rent control in parts of California, by the council tenancy system in the United Kingdom and by decades of central planning in former Soviet Bloc countries. Other circumstances that could lead to low per capita housing include war, natural disasters, input-supply bottlenecks and an undeveloped financial sector. This problem is not only costly in itself to the residents within these economies, but it also affects other markets. Since job movements and residential movements are often related, the labor market is especially vulnerable to the availability of housing. The manner in which the labor and housing markets interact is therefore of particular interest, but it has generally been under-researched (Malpezzi and Ball 1991, p. 74).

This paper develops a dynamic model which displays the negative effect of residential crowding on labor productivity, and which takes into account inter-regional migratory flows induced by regional labor productivity differentials. Residential crowding is defined here as the reciprocal of the housing stock per person or per household (e.g., average number of persons per room). A large extent of residential crowding leads to greater difficulty in finding housing. This in turn leads to reduced labor mobility and a less productive allocation of labor. This issue can be especially critical for reforming former socialist economies, since their success in attracting foreign capital and in developing local entrepreneurship may hinge on the ability of new businesses to draw the necessary type of labor. This ability may be constrained by high residential crowding.

This paper also provides empirical estimates of the effect of residential crowding on labor productivity. This is apparently the first effort to test this relationship using aggregate data. In addition, estimates of how labor productivity affects residential crowding are provided. The estimates in this paper are based primarily upon 1989 Polish data aggregated at the regional level. The data support the hypothesis that greater residential crowding decreases labor productivity, but they also suggest that higher labor productivity leads to increased crowding.

The results in this paper are complementary to those in previous studies by Mayo and Stein (1995) and Pogodzinski (1995). Both of those studies were concerned with the spillover of housing market shortages on labor markets, and similarly used Polish data to support their arguments. Pogodzinski showed that housing shortages decreased labor supply through consumption distortions, and Mayo and Stein showed that housing shortages reduced immigration and induced distortive higher wages. This paper finds that greater residential crowding (a variable which was often used as a proxy for housing shortage in the above-mentioned papers) tends to reduce labor productivity within a region. Theoretically, this is due to the same migration effect that Mayo and Stein found. However, this paper applies this effect to intra-regional migration, whereas Mayo and Stein applied it to inter-regional migration. This paper also shows that higher labor productivity increases residential crowding. This relationship corresponds closely to Mayo and Stein's finding that higher wage levels induce greater net immigration.

The organization of the rest of the paper is as follows. The following (second) section reviews the relevant recent literature. A model describing the interaction between labor productivity and residential crowding is presented in the third section. Data sources are discussed in the fourth section. The fifth section presents the empirical analysis, and the conclusion follows.

Literature Review

A number of authors have mentioned the adverse effect of residential crowding on labor mobility, often implying the accompanying adverse effect on labor productivity (World Bank 1987, p. …

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