Economist shows the value of moving back with mom and dad

Jun 25, 2012

Though many may dread the idea, young adults who move back home with mom and dad after a job loss may benefit from it more than they realize. Research published in the Journal of Political Economy finds that returning to the nest can be valuable insurance in a tough labor market, serving as a short-term safety net while also keeping long-term earnings from being stunted by a job loss.

"Intuitively, it makes sense that people move home after an employment shock," said Greg Kaplan, an economics professor at the University of Pennsylvania and the study's author. "We've seen a lot of anecdotal evidence of this during the latest , but there hadn't been much hard data on how common it is or what the effects might be. This study demonstrates that the option to move home is potentially very important."

Kaplan used data on nearly 1,500 men born between 1980 and 1984. Surveys tracked the men through their 20s, capturing employment status and living arrangements for each month. By the age of 23, nearly 40 percent of the men in the sample had returned home for at least a month after initially moving away from home. Those who stopped working were 63 percent more likely to back move home in the following three months, compared to those who continued to work. Constraints of the survey data forced Kaplan to limit his sample to men who did not go to college, but an additional dataset suggests that the phenomenon applies to the broader population. "When we look at aggregate state-level data we see a similar pattern," Kaplan said. "As a state's unemployment level increases, so do co-residency rates."

The data show an important long-term advantage to moving home after a . Take for example an average person in Kaplan's sample who loses his job at the age of 20. People in that situation had earnings at age 26 that were 25 percent lower than someone who did not lose a job. However, this long-term effect was concentrated almost entirely among youths who did not live with their parents and did not return home after their job loss. Those who lost a job and did move back home had essentially the same earnings in later years as people who had never lost a job.

Why does living with mom and dad serve as a buffer from the negative earnings effect? Kaplan believes it's because those living at home can be choosier when looking for a new job. They have the option to wait for a job that offers higher future earning potential. "Jobs with higher growth potential may be harder to find," Kaplan said. "And they often involve low earnings in the short run but higher earnings in the future—an internship for example. If you're living at home, you might be able to wait for these better opportunities."

But if you're on your own and need to pay rent, you need a decent-paying job quickly. Easier-to-find jobs—like food service or simple labor—have lower long-term growth potential. As a result people who are pushed into those jobs will have lower earnings down the line compared to those who can live at home and wait it out.

To test this idea, Kaplan used his real-world data to construct a theoretical model that simulates labor market choices. "In the model, I can do counterfactual experiments," he said. "I can take away the option to move home and see how important it is in different circumstances."

Using his data, Kaplan modeled how a 23-year-old might evaluate job offers in a world where the option to move home was turned on or off. He created two types of hypothetical jobs. "Safe" jobs come around often, but have lower potential for future earnings. "Risky" jobs are rarer, but have higher future earnings.

According to the model, there would be as many as 15 percent fewer youths working in risky, high-growth jobs if the option to move home is removed entirely, resulting in lower earnings over the long term. The model results echo the long-term income loss found in the real-world data and provide good evidence that the pattern is linked to constrained job choices for those who may be unable to move home.

Explore further: Teachers' scare tactics may lead to lower exam scores

More information: "Moving Back Home: Insurance against Labor Market Risk." Journal of Political Economy 120:3 (June 2012).

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infinite_energy
2.8 / 5 (5) Jun 25, 2012
Federal minimum wage is $7.25 per hour.
If you work 8 hours a day that amounts to 58$ per day.
1 person can survive on this money on his/her own for a long time.
The problem with USA is that not even minimum wage jobs are available for all and many people are left out of the job market.
Eric_B
3.7 / 5 (3) Jun 25, 2012
"If you work 8 hours a day that amounts to 58$ per day.
1 person can survive on this money on his/her own for a long time."

No you/I can't...

Please feel free to send your earnings above this rate to me via paypal if you want to keep foisting this lie onto working folks.

Just don't get sick EVER and make sure you don't need a car.

Live celibate and get anti-depressants from your local county hospital shrink because you will not be able to afford a lover or a family and you will be having NO FUN, EVER!
infinite_energy
1 / 5 (1) Jun 26, 2012
... if you want to keep foisting this lie onto working folks.


It is not me that I am lying but the federal government.
The simplest solution will be to raise the federal minimum.
Personally I think one can somehow survive for 7.25$/hr x 8hrs x 22days. If you want more nobody stops you.
Please feel free to send your earnings above this rate to me via paypal ...
- What a thief!

bhiestand
5 / 5 (1) Jun 26, 2012
What a thief!

A thief? He's asking you to demonstrate your ridiculous assertion.

You need to define "surviving" on that amount. In moderate-high cost of living areas, $1200/month is misery. You're lucky to sleep on someone's couch in San Francisco for $400/month. Live somewhere lacking mass transit? There goes $200 on a vehicle insurance gas, if you're lucky. Healthcare? Buy a prayer plan, because if you have any major conditions you can't afford it. Hope you don't have student loans. Oh, and good luck getting food.

Wages have NOT kept up with expenses. People may be able to avoid starvation on minimum wage, but are at perpetual risk of bankruptcy from even a minor medical condition or accident. They certainly can't afford to raise kids, eat healthy foods, etc.
Vendicar_Decarian
5 / 5 (1) Jun 27, 2012
In the U.S. a low end apartment will run you around $550 a month, minimum. Which is roughly half of minimum wage income.

If you intend to drive a car to work, you are looking at a cost of around $6,000 a year to keep it on the road, or around 500 a month .

That leaves you with around $100 for food, clothing, and everything else needed for survival.

Since this is not possible, A minimum wage job forces the worker to either abandon driving, take in a room mate, or both.

Doing both gives the worker $900 a month to pay for utilities, bus service, food, clothes, etc.

A bus pas and food are probably both $100 a month Utilities $100, phone $30, maintenance $100, Other $150 leaving around $300 per month for saving.

So a frugal single person can save around $3600 a year in the U.S. with a bare minimum lifestyle and a minimum wage job.

"If you work 8 hours a day that amounts to 58$ per day.
1 person can survive on this money on his/her own for a long time." - Infinite energy

Vendicar_Decarian
5 / 5 (1) Jun 27, 2012
OOps. I have forgotten a cost. Medical Care. I live in a socialist state that provides the care free of charge. But in the U.S. this isn't the case.

I think that the cost of reasonable health care insurance in the U.S. would eat up all of the potential savings shown above.

With a minimum wage job, a full time worker in the U.S. might just keep his head above water.

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