Living arrangements and labor market volatility of young workers

Sebastian Dyrda, Greg Kaplan and José-Víctor Ríos-Rull

Journal of Economic Dynamics and Control, 2024, vol. 169, issue C

Abstract: Household size is countercyclical, mainly because of young people moving into or delaying departure from the parental home. Those living in older households earn less and have more volatile hours than their peers living alone. We pose a theory of household formation and labor choice over the business cycle. Young people decide where to live depending on their wage, taste for living within the old household, and implicit transfers received. Our theory accounts for the bulk of the contribution of the household's size volatility to the volatility of the aggregate hours. Including people with varying living arrangements yields an implied aggregate, or macro, Frisch elasticity around 70 percent larger than the assumed micro elasticity.

Keywords: Business cycles; Household formation; Aggregate risk; Elasticity of labor supply (search for similar items in EconPapers)
JEL-codes: E32 J22 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:169:y:2024:i:c:s0165188924001507

DOI: 10.1016/j.jedc.2024.104958

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