Parents with an Unemployed Adult Child: Labor Supply, Consumption, and Savings Effects
Kathryn Anne Edwards and Jeffrey B. Wenger
- With longitudinal data on parents and children from the Panel Study of Income Dynamics, we use within-parent variation in behavior to identify the effect of a child’s labor market shock on parental outcomes.
- The youngest mothers (younger than 62) who have the most margins to adjust their behavior change on nearly every dimension: They reduce their food consumption, increase their labor supply, and reduce their pension savings.
- The behavioral changes are larger than the monetary value of transfers — implying that either a) there are other mechanisms for transferring income to unemployed children that are not captured by cash transfers, or b) the behavioral response is in anticipation of changes in expectation about their child’s career prospects or changes in the probability of future employment disruptions.
- The effect of child unemployment on mothers’ labor market, consumption, and savings behavior is large and is likely larger than we describe since we exclude adult children cohabiting with parents.
- Younger mothers transfer money to their children when the child is unemployed, and older mothers transfer assets (most likely a vehicle).