Moving back home: insurance against labor market risk
AbstractThis paper uses an estimated structural model to argue that the option to move in and out of the parental home is an important insurance channel against labor market risk for youths who do not attend college. Using data from the NLSY97, I construct a new monthly panel of parent-youth coresidence outcomes and use it to document an empirical relationship between these movements and individual labor market events. The data is then used to estimate the parameters of a dynamic game between youths and their altruistic parents, featuring coresidence, labor supply and savings decisions. Parents can provide both monetary support through explicit financial transfers, and non-monetary support in the form of shared residence. To account for the data, two types of exogenous shocks are needed. Preference shocks are found to explain most of the cross-section of living arrangements, while labor market shocks account for individual movements in and out of the parental home. I use the model to show that coresidence is a valuable form of insurance, particularly for youths from poorer families. The option to live at home also helps to explain features of aggregate data for low-skilled young workers: their low savings rates and their relatively small consumption responses to labor market shocks. An important implication is that movements in and out of home can reduce the consumption smoothing benefits of social insurance programs.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 449.
Date of creation: 2010
Date of revision:
Other versions of this item:
- Greg Kaplan, 2012. "Moving Back Home: Insurance against Labor Market Risk," Journal of Political Economy, University of Chicago Press, vol. 120(3), pages 446 - 512.
- Greg Kaplan, 2010. "Moving back home: insurance against labor market risk," Working Papers 677, Federal Reserve Bank of Minneapolis.
- NEP-ALL-2010-08-14 (All new papers)
- NEP-IAS-2010-08-14 (Insurance Economics)
- NEP-LAB-2010-08-14 (Labour Economics)
- NEP-MIG-2010-08-14 (Economics of Human Migration)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- The parental home as unemployment insurance
by Economic Logician in Economic Logic on 2010-05-17 14:47:00
- Parents as Unemployment Insurance
by Mark Thoma in Economist's View on 2010-05-18 07:15:00
- Moving back home- Determining the household size!
by paragwaknis in Musings of the Sorts on 2013-05-07 04:50:57
- Moritz Kuhn & Sebastian Koehne, 2012.
"Should unemployment insurance be asset-tested?,"
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- Sebastian Koehne & Moritz Kuhn, 2013. "Should Unemployment Insurance be Asset-Tested," CESifo Working Paper Series 4324, CESifo Group Munich.
- Koehne, Sebastian & Kuhn, Moritz, 2012. "Should unemployment insurance be asset-tested?," MPRA Paper 36973, University Library of Munich, Germany.
- Koehne, Sebastian & Kuhn, Moritz, 2013. "Should Unemployment Insurance Be Asset-Tested?," IZA Discussion Papers 7488, Institute for the Study of Labor (IZA).
- Koehne, Sebastian & Kuhn, Moritz, 2012. "Should unemployment insurance be asset-tested?," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 66056, Verein für Socialpolitik / German Economic Association.
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- Deborah Cobb-Clark & Tue Gørgens, 2012. "Parents' Economic Support of Young-Adult Children: Do Socioeconomic Circumstances Matter?," Melbourne Institute Working Paper Series wp2012n04, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
- Effrosyni Adamopoulou & Ezgi Kaya, 2013. "Young adults living with their parents and the influence of peers," Economics Working Papers we1310, Universidad Carlos III, Departamento de Economía.
- Emma Tominey, 2010. "The Timing of Parental Income and Child Outcomes: The Role of Permanent and Transitory Shocks," CEE Discussion Papers 0120, Centre for the Economics of Education, LSE.
- Matthew T. Johnson, 2010. "Borrowing Constraints, College Enrollment, and Delayed Entry," Working Papers 2011-006, Human Capital and Economic Opportunity Working Group, revised Sep 2012.
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4867, Institute for the Study of Labor (IZA).
- Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009.
"Quantitative macroeconomics with heterogeneous households,"
420, Federal Reserve Bank of Minneapolis.
- Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009. "Quantitative Macroeconomics with Heterogeneous Households," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 319-354, 05.
- Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009. "Quantitative Macroeconomics with Heterogeneous Households," NBER Working Papers 14768, National Bureau of Economic Research, Inc.
- Sekyu Choi, 2010. "Fertility Risk in the Life-Cycle," 2010 Meeting Papers 594, Society for Economic Dynamics.
- Gianluca Violante & Greg Kaplan, 2008. "How Much Insurance in Bewley Models?," 2008 Meeting Papers 522, Society for Economic Dynamics.
- Hernan Winkler, 2011. "The Effect of Homeownership on Geographic Mobility and Labor Market Outcomes," 2011 Meeting Papers 196, Society for Economic Dynamics.
- Kai Liu, 2010. "Wage Risk, On-the-job Search and Partial Insurance," 2010 Meeting Papers 1136, Society for Economic Dynamics.
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