Mortgage cash-flows and employment

Abstract

This paper quantifies the impact of the cash-flow channel of monetary policy on employment by combining novel micro datasets with near-universal coverage. When interest rates fall, mortgaged households spend an important share of the extra cash-flow in their local economy, increasing local labor demand. Overall, a reduction in mortgage payments of £1,000 per household leads to a 0.5 percentage point increase in locally non-tradable employment growth over three years, almost entirely driven by the restaurant sector. Employment-growth effects operate through the intensive margin for small establishments, lower death rates for the mid-sized and higher birth rates for the largest outlets.