A mediation analysis of the relationship between land use regulation stringency and employment dynamics

The paper examines the effects of stringent land use regulations, measured using the Wharton Residential Land Use Regulatory Index (WRLURI), on employment growth during the period 2010–2020 in the Retail, Professional, and Information sectors across 878 local jurisdictions in the United States. All the local jurisdictions exist in both (2006 and 2018) waves of the WRLURI surveys and hence constitute unique panel data. We apply a mediation analytical framework to decompose the direct and indirect effects of land use regulation stringency on sectoral employment growth and specialization. Our analysis suggests a fully mediated pattern in the relationship between excessive land use regulations and employment growth, with housing cost burden as the mediator. Specifically, a one standard deviation increase in the WRLURI index is associated with an approximate increase of 0.8 percentage point in the proportion of cost burdened renters. Relatedly, the higher prevalence of cost-burdened renters has moderate adverse effects on employment growth in two sectors. A 1 percentage point increase in the proportion of cost burdened renters is associated with 0.04 and 0.017 percentage point decreases in the Professional and Information sectors, respectively.