Job earnings recovery faster for those close to home
LEXINGTON, Ky. (Feb. 9, 2017) — Living close to mom and dad pays off for young people who have lost a job, says a study by the Federal Reserve Bank of Cleveland. The report found that post-job-loss earnings recovery is faster for young adults ages 25-35 who live near their parents than for young adults who live farther away.
But the same can’t be said for those a little older. Among adults 36-55, “this positive effect diminishes gradually as the distance to one’s parents increases. Most of the effect is driven by higher wages after job displacement, not by differences in the number of hours worked. The effect is not present for older workers, who may be caring for elderly parents.”
The study used data of about 35,000 people from 1968-2013 from the Panel Study of Income Dynamics (PSID), focusing on people 18-62.
“The data contain about 1,350 job displacement events, of which approximately 450 took place while an individual resided in their parents’ neighborhood, and approximately 900 occurred while an individual was not in their parents’ neighborhood.“
Summary statistics from the data reveal the following:
- Displaced workers are slightly younger, are less educated, and have been with their employer for a shorter period of time than their nondisplaced counterparts.
- Displaced workers earn significantly less than nondisplaced workers, even before the displacement event.
- Those who live outside of their parents’ neighborhoods tend to be younger, be more educated, and earn significantly more than those who live in their parents’ neighborhoods.
- Around 30 percent of adults live in the same neighborhoods as their parents.
Looking at average earnings before and after a displacement for workers ages 25 to 35 reveals:
- On average, displacement leads to a large initial decrease in annual earnings of around $10,000, which is about 20 percent to 25 percent of predisplacement earnings.
- While earnings for these displaced individuals recover, this recovery does not exceed the earnings gains experienced by nondisplaced workers. In fact, displaced workers’ earnings recover to their predisplacement level about six years after the displacement event, but displaced workers’ earnings do not catch up to those of nondisplaced workers even 10 years after displacement.
Analysis suggests that young workers living in their parents’ neighborhoods prior to job displacement experience stronger labor market recoveries than those who live farther from their parents.
Three major mechanisms are consistent with these results:
- Parents may provide informal insurance during adverse labor market shocks, stepping in with resources such as housing, child care, and food when their adult children experience job losses, assistance which could facilitate a more ambitious job search.
- Parents may use their social networks to assist their adult children in finding employment after their job losses.
- Parents may provide additional motivation and encouragement to their children after the job displacement, a situation which may help with the job search process.