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 Working Papers with number 677.
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," Staff Report 449, Federal Reserve Bank of Minneapolis.
- NEP-ALL-2010-04-17 (All new papers)
- NEP-IAS-2010-04-17 (Insurance Economics)
- NEP-LAB-2010-04-17 (Labour Economics)
- NEP-MIG-2010-04-17 (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
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