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Living near your parents may improve your earnings recovery after a job loss, according to a study published by the Cleveland Fed

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The study suggests that displaced workers' parents provide childcare and access to employment networks

Almost half of all workers in the US experience a job displacement -- losing a relatively stable job through no fault of their own. And displaced workers experience large and long-lasting earnings losses.

In a 2017 study, economic researchers Patrick Coate, Pawel Krolikowski, and Mike Zabek documented that young adults who live near their parents experience stronger earnings recoveries after a job displacement than those who live farther away. In a new study, the researchers present evidence that this finding is more than a correlation and that there is a causal link between living near one's parents and faster earnings recoveries after a job loss.

The researchers also present some evidence on what might drive this causal relationship. They find that the positive earnings effect is apparent only for workers who have children of their own, which suggests that parents' help in caring for their grandchildren is important in achieving the healthier earnings recovery. The researchers also find some weak evidence that young adults who live closer to their parents are more likely to be employed in their parents' industries after a job loss, suggesting that parents might help their children find jobs, perhaps through employment networks.

The researchers say that housing provided for or subsidized by parents is an unlikely explanation for their findings, even though there is evidence that young adults, as a whole, move back in with parents after economic turbulence.

According to Coate, Krolikowski and Zabek, providing support for workers who live far from home could encourage more workers to embrace distant job opportunities. “While workers may receive the same services by living closer to their parents, this lack of mobility can come at a significant cost in terms of lost earnings,” say the researchers, “given that, on average, never-displaced workers who live near their parents earn far less than never-displaced workers who live farther away.”

Read Parental Assistance after Job Loss.

Patrick Coate is a research fellow at the American Institute for Economic Research, Pawel Krolikowski is a research economist at the Federal Reserve Bank of Cleveland, and Mike Zabek is a PhD candidate at the University of Michigan.

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