A recent study
from the Federal Reserve Bank of Cleveland found that while job loss impacts future earnings no matter what, it's not as bad if you live close to your parents. The study reached this conclusion by looking at the Panel Study of Income Dynamics, a data set that covers 35,000 people between the ages of 18 and 62 over the course of 20 years. This data set includes repeated observations of individuals’ demographic information and their labor earnings in the previous calendar year,
job histories, and parental location. Around 30 percent of those in the survey live in the same neighborhood as their parents.
What the study found was that job loss leads to a large initial decrease in annual earnings of an average of $10,000, which is about 20 percent to 25 percent of predisplacement earnings. This earnings gap between displaced and non-displaced workers persists over 10 years. In contrast, displaced workers in the same neighborhood as their parents take about six years to fully recover.
"This means that displaced workers who don’t live near their parents shoulder all the burden of the long-run negative effects of displacement on earnings," said the study.
The Federal Reserve Bank of Cleveland came up with several hypotheses as to why this might be the case. One is that parents could provide informal insurance during labor market shocks, stepping in with resources like housing, child care and food when their adult children experience job losses, which in turn could facilitate a more ambitious job search. Parents could also use their own social networks to assist their children in finding new jobs. The study also speculated that parents could also provide additional motivation for their children to find a new job and even help with the job search process.
The study did note, however, that this effect may not be as powerful if someone is caring for elderly parents, as transfer of resources tends to go the other way.
The study noted that the results might explain how family presence impacts worker migration, and why people might not be willing to relocate to a new job, or move to a new city with better prospects. This, in turn, could explain why workers appear to be less mobile in economic downturns and why immigrants are particularly mobile. These findings, according to the study, could be instructive for local governments on how to structure assistance programs after job losses.
"If governments would like workers to relocate after job losses, they might wish to establish programs to support workers in similar ways as workers’ families already do. Even if these programs perfectly crowd out family investments, they may still be worthwhile in allowing workers to relocate across geographies. Further research regarding family assistance after job loss may also illuminate the specific mechanisms that allow families to support workers after they lose their jobs. Governmental programs may be able to replicate some of these mechanisms," said the study.