Working Paper: NBER ID: w17880
Authors: Sebastian Dyrda; Greg Kaplan; Josvctor Rosrull
Abstract: We provide new evidence on the the cyclical behavior of household size in the United States from 1979 to 2010. During economic downturns, people live in larger households. This is mostly, but not entirely, driven by young people moving into or delaying departure from the parental home. We assess the importance of these cyclical movements for aggregate labor supply by building a model of endogenous household formation within a real business cycle structure. We use the model to measure how much more volatile are hours due to two mechanisms: (i) the presence of a large group of mostly young individuals with non-traditional living arrangements; and (ii) the possibility for these individuals to change their living situation in response to aggregate conditions. Our exercise assumes that older people living in stable households have a Frisch elasticity that is consistent with the micro evidence that is based on such people. The inclusion of people living in unstable households yields an implied aggregate, or macro, Frisch elasticity that is around 45% larger than the assumed micro elasticity.
Keywords: business cycles; household formation; labor elasticity
JEL Codes: E32; J10; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Economic downturns (E32) | Household sizes increase (D19) |
| Household sizes increase (D19) | Aggregate labor supply volatility increases (J49) |
| Inclusion of unstable individuals (I14) | Macro Frisch elasticity increases (E31) |
| Cyclical variance of hours worked per household (E24) | Cyclical variance of hours worked per person (J22) |
| Frequent household changes (D10) | Volatile labor market outcomes (J69) |