A Threshold Analysis of the Effect of House Prices on U.S. Local Labor Markets

This paper uses a threshold regression model to examine whether the effect on total employment of an exogenous change in tradable sector employment differs in systematic ways depending on the average house price. The results based on data from 321 U.S. metropolitan areas suggest the presence of a threshold effect. The local employment multiplier increases with the average house price until some house price threshold level beyond it decreases, suggesting that affordable local housing markets not only help attract companies but also allow local economies to maximize the benefits from location-based development policies aimed at creating more jobs.