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)
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Moving back home- Determining the household size!
by paragwaknis in Musings of the Sorts on 2013-05-07 04:50:57
- 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
- Maria Concetta Chiuri & Daniela Del Boca, 2009.
"Home-leaving Decision of Daughters and Sons,"
Carlo Alberto Notebooks
136, Collegio Carlo Alberto.
- Kai Liu, 2010. "Wage Risk, On-the-job Search and Partial Insurance," 2010 Meeting Papers 1136, Society for Economic Dynamics.
- Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009.
"Quantitative Macroeconomics with Heterogeneous Households,"
NBER Working Papers
14768, National Bureau of Economic Research, Inc.
- 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," Staff Report 420, Federal Reserve Bank of Minneapolis.
- Sekyu Choi, 2010. "Fertility Risk in the Life-Cycle," 2010 Meeting Papers 594, Society for Economic Dynamics.
- 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.
- Deborah Cobb-Clark & Tue Gørgens, 2012.
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Melbourne Institute Working Paper Series
wp2012n04, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
- Cobb-Clark, Deborah A. & Gorgens, Tue, 2012. "Parents' Economic Support of Young-Adult Children: Do Socioeconomic Circumstances Matter?," IZA Discussion Papers 6376, Institute for the Study of Labor (IZA).
- Greg Kaplan & Giovanni L. Violante, 2010.
"How Much Consumption Insurance beyond Self-Insurance?,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 2(4), pages 53-87, October.
- Greg Kaplan & Giovanni L. Violante, 2009. "How Much Consumption Insurance Beyond Self-Insurance?," NBER Working Papers 15553, National Bureau of Economic Research, Inc.
- Hernan Winkler, 2011. "The Effect of Homeownership on Geographic Mobility and Labor Market Outcomes," 2011 Meeting Papers 196, Society for Economic Dynamics.
- 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.
- Gianluca Violante & Greg Kaplan, 2008. "How Much Insurance in Bewley Models?," 2008 Meeting Papers 522, Society for Economic Dynamics.
- Lagakos, David & Ordoñez, Guillermo L., 2011. "Which workers get insurance within the firm?," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 632-645.
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