Young Adults Living with their Parents and the Influence of Peers
| Date | 01 June 2018 |
| DOI | http://doi.org/10.1111/obes.12198 |
| Published date | 01 June 2018 |
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©2017 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd.
OXFORD BULLETIN OF ECONOMICSAND STATISTICS, 80, 3 (2018) 0305–9049
doi: 10.1111/obes.12198
Young Adults Living with their Parents and the
Influence of Peers*
Effrosyni Adamopoulou† and Ezgi Kaya‡
†Directorate General for Economics, Statistics and Research, Structural Economic Analysis
Directorate, Bank of Italy and IZA, Via Nazionale 91, Rome, 00184, Italy
(e-mail: effrosyni.adamopoulou@bancaditalia.it)
‡Cardiff Business School, Cardiff University, Aberconway Building, Colum Drive, Cardiff,
CF10 3EU, UK (e-mail: KayaE@cardiff.ac.uk)
Abstract
This study examines the impact of peer behaviour on the living arrangements of young
adults in the US using data from the National Longitudinal Study of Adolescent Health.
Weachieve identification by exploiting the differences in the timing of leaving the parental
home among peers, the individual-specific nature of the peer groups that are based on
friendship nominations, and by including network and cohort fixed effects. Our results
indicate that there are statistically significant peer effects on young adults’ decisions to
leave the parental home. We discuss various mechanisms and confirm the robustness of
our results through a placebo exercise.
I. Introduction
The decision to leave the parental home is known to have significant consequences on cur-
rent and future labour market outcomes (e.g. labour force participation, unemployment, job
mobility), as well as on marriage and fertility.Numerous studies based on souther n Europe,
where living with one’s parents during young adulthood has always been the norm, have
found negative effects of prolonged stay in the parental home on labour supply (Esping-
Andersen, 1999; Manacorda and Moretti, 2006), income (Billari and Tabellini, 2010), and
on geographic and job mobility (Eurofound, 2006). Understanding the reasons behind
the prevailing living arrangements of young adults is relevant to the debate on policies
JEL Classification numbers: D10, J12, J60, Z13.
*Weare grateful to Nezih Guner for his valuable advice and guidance. Manythanks to the editor, Beata Javorcik, two
anonymous referees, David Card, Federico Cingano,Ana Rute Cardoso, Francesco Fasani, Lid´ıa Farr´e, Joan Llull,
Alfonso Rosolia, Giovanna Vallanti, the participants in the 2016 Portsmouth University Economics and Finance
Research Seminar, in the 2016 IAAE Conference in Milan, in the 2016 ESPE Conference in Berlin, in the 2016 RES
Conference in Brighton, in the 2013 RSA in Bologna, in the 2012AIEL Conference in Caserta, and in the 2012 SAEe
in Vigofor useful suggestions. Ezgi Kaya acknowledges financial support from the Spanish Ministry of Science and
Innovation through grant ‘Consolidated Group-C’ECO2008-04756 and FEDER. The views expressed in this paper
are those of the authors and do not necessarily reflect those of the Bank of Italy.All the remaining errors are ours.
690 Bulletin
attempting to increase employment and fertility among the youth, and to discussions on
the solvency of intergenerational transfer programmes.1
Living arrangements are certainly affected by outside economic conditions. Thus, it is
perhaps no surprise that the proportion of young adults living with their parents increased
significantly during the Great Recession in many advanced countries, starting with the
United States (Dyrda, Kaplan and R´ıos-Rull, 2012; Kaplan, 2012; Lee and Painter, 2013;
Bitler and Hoynes, 2015; Hotz et al., 2017; Matsudaira, 2015).2However, this trend has not
reversed in recent years, despite labour market conditions having recovered significantly.
In the United States, the proportion of young adults living with their parents has remained
historically high, and in the age group 25–29, is increasing (see Fry (2015) and Figure
1a,b). In 2014, for the first time in more than 130 years, the most common arrangement
among adults aged 18–34 was living in their parents’ homes, rather than with a spouse or
partner in their own households (Fry, 2016).
The increasing proportion of young adults living with their parents has been accompa-
nied by a decrease in homeownership by younger households (Agarwal, Hu and Huang,
2016). This pattern, which may impact the housing market and overall consumption, is
causing growing concern among policymakers, and has been explained based on local
house prices and employment conditions, as well as on students’ debt reliance (Bleemer
et al., 2014). While we do not rule out the importance of these factors, in this study,
we focus specifically on the role of peer effects in the co-residence of young adults with
their parents, so that a high fraction of peers living with their parents lowers each individ-
ual’s probability of leaving home. Among the potential mechanisms behind peer effects
are the lower cost of a search effort (complementarities), maintenance of friendship ties,
reduced stigma attached to young adults who live with their parents or simply imitation
among peers. Independent of the underlying mechanisms, in the presence of peer effects,
factors that stimulate the nest-leaving decisions of young adults may be reinforced even
further. The interest in assessing the relevance of peer effects is also policy driven, because
through similar mechanisms, measures that affect the leaving decisions of young adults
may be multiplied through social networks.3
We estimate the impact of peer behaviour on the living arrangements of young adults
using a unique longitudinal data set of a representative sample of adolescents in the United
States, followed until young adulthood, which contains detailed information on demo-
graphic and individual characteristics, family of origin, labour and neighbourhood hous-
ing market conditions,4and high school friends.5Thus, we are able to observe the living
arrangements of the respondents and their friends (peer group) in the transition to
1Some European countries that were characterized by a high proportion of young adults living with their parents
have already adopted these types of policies by subsidizing young tenants. See, for example, the ‘Renta Basica de
Emancipaci´on’ in Spain, the ‘Porta 65’ in Portugal and ‘Aide Mobili-Jeune’ in France.
2WhileAmericans tend to leave the parental home relatively earlier than Europeans do, the increasing proportion of
young adults who livewith their parents in the United States has attracted the attention of scholars and policymakers.
A similar tendency in the living arrangements of young adults has been observed also in the United Kingdom.
3See Dahl, Løken and Mogstad (2014).
4Neighbourhood is defined by the census block group in which respondents were living. Block groups average
about 1,000 inhabitants.
5These adolescents wereinter viewedin 1994 while at high school, and then again in 2001 while in young adulthood
(average age 21.5).
©2017 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd
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