New Study Finds Evidence That Being Underwater On Your Mortgage Limits Your Labor Mobility (Duh!!!)

Plamen Nenov at the Massachusetts Institute of Technology is out with a new study titled "Labor Market and Regional Reallocation Effects of Housing Busts" which finds that those who are underwater on their mortgage have a harder time packing up for greener pastures when a better job opportunity pops up.  Here is the study's abstract:

The present paper studies the impact of a housing bust on regional labor reallo-
cation and the labor market. I document a novel empirical fact, which suggests that,
by increasing the fraction of households with negative housing equity, a housing bust
hinders interregional mobility. I then study a multi-region economy with local labor
and housing markets and worker reallocation. The model can account for the positive
co-movement of relative house prices and unemployment with gross out-migration and
negative co-movement with in-migration observed in the cross section of states. A
housing bust creates debt overhang for some workers, which distorts their migration
decisions and increases aggregate unemployment in the economy. This adverse e ect
is ampli ed when regional slumps are particularly deep as in the recent U.S. recession.
In a calibrated version of the model, I nd that the regional reallocation e ect of
the housing bust can account for between 0.2 and 0.5 percentage points of aggregate
unemployment and 0.4 and 1.2 percentage points of unemployment in metropolitan
areas experiencing deep local recessions in 2010. Finally, I study the labor market
e ects of two policies proposed for addressing the U.S. mortgage crisis.

Though it's always nice to see an econometric model "proving" the obvious, the Austrian method of deduction known as praxeology would have made the conclusion to Nenov's study evident from the get-go.  By utilizing a posteriori reasoning, it's easy to deduce that when someone takes out a mortgage for a house worth more than it is presently and is now saddled with paying said mortgage or risk a blow to their credit score, such a dire situation weighs heavily on a person's ability to be mobile amid rising opportunities.  Underwater mortgages act as a anchor on financial independence and thus freedom to pursue other more satisfying endeavors.  You don't need a 72 page paper littered with mounds of data and mathematical formulas to prove this self evident phenomena.  In his classic essay "The Mantle of Science" Murray Rothbard verbally cuts through the misconception that mathematics and economics are one in the same:

Not only measurement but the use of mathematics in general in the social sciences and philosophy today, is an illegitimate transfer from physics. In the first place, a mathematical equation implies the existence of quantities that can be equated, which in turn implies a unit of measurement for these quantities. Second, mathematical relations are functional; that is, variables are interdependent, and identifying the causal variable depends on which is held as given and which is changed. This methodology is appropriate in physics, where entities do not themselves provide the causes for their actions, but instead are determined by discoverable quantitative laws of their nature and the nature of the interacting entities. But in human action, the free-will choice of the human consciousness is the cause, and this cause generates certain effects. The mathematical concept of an interdetermining "function" is therefore inappropriate.

Indeed, the very concept of "variable" used so frequently in econometrics is illegitimate, for physics is able to arrive at laws only by discovering constants. The concept of "variable," only makes sense if there are some things that are not variable, but constant. Yet in human action, free will precludes any quantitative constants (including constant units of measurement). All attempts to discover such constants (such as the strict quantity theory of money or the Keynesian "consumption function") were inherently doomed to failure. (my emphasis added)

Assets bubbles and their subsequent busts caused by artificially cheap credit via the central bank bring about a multitude of unintended and disastrous consequences for those duped into buying the supposed "low."  These individuals who purchased homes at the height of the housing boom now find themselves between a rock and a hard place as they are limited in their capacity to pursue better employment in a weakened economy because of a mortgage weighing them down.  But again, one doesn't need an economic model to figure this out; just a simple foray in determining cause and effect in a world composed of thinking, end-pursuing human beings.

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Gonna post some form of this over at LvMIC.