Abstract

This paper uses an estimated structural model to argue that the option to move in and out

of the parental home is an important insurance channel against labor market risk for low-

skilled youths. Using data from the NLSY97, I construct a new monthly panel of parent-youth

coresidence outcomes and use it to document an empirical relationship between these movements

and individual labor market events. The data is then used to estimate the parameters of a

dynamic game between youths and their altruistic parents, featuring coresidence, labor supply

and savings decisions. Parents can provide both monetary support through explicit .nancial

transfers, and non-monetary support in the form of shared residence. To account for the data,

two types of exogenous shocks are needed. Preference shocks are found to explain most of the

cross-section of living arrangements, while labor market shocks account for individual movements

in and out of the parental home. I use the model to show that coresidence is an important form

of insurance, particularly for youths from poorer families. The option to live at home also helps

to explain features of aggregate data for low-skilled young workers: their high elasticity of labor

supply and their relatively small consumption responses to labor market shocks. An important

implication is that movements in and out of home can reduce the consumption smoothing bene.ts