The basic argument seems to be if you live in a house your less likely to move to where jobs are because of the transaction costs associated with selling your house and moving from one community to another. So when you are made redundant – you opt for welfare rather than moving to another place.

This seems more plausible in the provinces than in cities. Changing jobs in a provincial setting could mean a move to another town and with it, complete displacement from one community to another. With such upheaval, one could understand the hesitancy for such a shift. In a city though, new job opportunities might just mean a slightly longer or more unpleasant commute. Just how much would that really put someone off taking up a new job? And with over 80% of New Zealanders living in urban areas, perhaps the Oswald effect is something from a bygone era.

If the Oswald effect was shown to be significant though, it is interesting to think through what some of the policy responses might be. Perhaps we would not be so quick to encourage home ownership over renting; or perhaps we would let people access their kiwisaver funds for something other than just housing …. Or alternatively, new rules to make it more difficult to access an unemployment benefit in areas where there are no jobs?

It looks like much more analysis is going to be done when the 2013 Census is available so I guess we wait and see where Jacques Poot and Bill Cochrane, from the University of Waikato get to on this stuff – interesting stuff nonetheless.