Moving back home: insurance against labor market risk

Greg Kaplan

No 677, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: This 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.

Date: 2010
New Economics Papers: this item is included in nep-ias, nep-lab and nep-mig
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4396 (application/pdf)
http://www.minneapolisfed.org/research/WP/WP677.pdf

Related works:
Journal Article: Moving Back Home: Insurance against Labor Market Risk (2012)
Working Paper: Moving back home: insurance against labor market risk (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:677

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Kate Hansel ().