Underwater Homeowners Will Work for Less Pay: Cutting Research

[xchrom]

http://www.bloomberg.com/news/2012-12-28/underwater-homeowners-will-work-for-less-pay-cutting-research.html

People who are underwater on their home mortgages probably will accept “significantly” lower wages than other homeowners, according to a study published this month by the Federal Reserve Bank of Atlanta.

The recent U.S. housing bust left many homeowners with mortgage debt larger than the equity value of their homes, say Fed Bank of Atlanta economist Chris Cunningham and Robert R. Reed of the University of Alabama.

They cite data showing that 31.4 percent of U.S. homeowners were underwater in the fourth quarter of 2011. People in that situation tend to value employment more than those with significant housing wealth do, because without a job they would default on their home loan, Cunningham and Reed said. They thus are willing to accept lower wages than their counterparts.

Their study found that being underwater is associated with a wage decline of between a 5 percent and 9 percent.

[aquart]

1. And they studied this WHY?

Will it increase their bonuses to exploit these desperate people more?

[Fumesucker]

2. It's fun?

Some people get their kicks pulling the wings off flies.

Some study how best to gain from the misery of other people.

[liberal N proud]

3. They studied it to prove they could exploit their workers

Drive your workers into debt and then you have them by the balls (metaphorically) and can take advantage of them.

Driving the middle class into extinction.

[Purveyor]

4. +1 eom

[Yo_Mama]

5. It's true, but the explanation is wrong

These people have less mobility - if you are underwater, it will cost you money to move for a job, so you will settle for lower-paid employment because the net economic gain to you is higher. Changes in living arrangements that cost you more when you must move will always decrease labor mobility and lower nominal wages.

The same is true for women with younger children, who are less likely to move for good pay because they have viable support structures that help them with child care where they live. The same is also true of dual-income couples - it may be that one of the two can get a good high-paying job, but if it requires a move, the net cost to the couple's income may be higher than the raise.

The old economic truisms that held true for a middle-class in which women didn't work are long gone, and it is truly hilarious to read a lot of the puzzled economic analysis as to why labor mobility is so much less now than it was in the aftermath of the 80s recession.