Youth Living Arrangements, Economic Independence, and the Role of Labor Market Changes: A Cohort Analysis from the Early 1970s to the Late 1980s

Between the late 1960s and early 1990s, young workers experienced declining average real wages and increasing labor market inequality. High-skilled youths—those with a college degree—fare better in this new economy relative to youths with few skills and little formal education. This paper studies two separate, but related, indirect effects of this labor market deterioration: changes in living arrangements and changes in economic independence, the ability to financially support oneself and dependents. We find that over this period, youths tended to shift away from living arrangements with significant financial responsibility, such as living with a spouse and children, and toward arrangements with less responsibility, such as remaining at home with one’s parents or living alone. This shift is especially pronounced for low-skilled youths, those most adversely affected by the labor market deterioration. These changes in living arrangements tended to increase the economic independence of youths relative to their loss in economic independence were they unable to alter these living arrangements.