Family ties and unemployment

Abstract

In this paper we build a model economy in which the prevailing family structure arises endogenously as a response to labor market conditions. In this model the members of the household (parents and young adults) either work in the market, search for a job, or produce a household good. Parents feel altruistically towards their offspring. Our first finding is that search efforts of the unemployed members of the family are strategic substitutes. The second one is that, everything else equal, young adults leave their parents’ house if they receive a sufficiently high wage; otherwise, they stay. In the latter case, both young adult’s and spouse’s search efforts are lower, since the spouse’s opportunity cost of working in the market is greater when the employed young adult stays at home. As a result, both youth’s and female spouse’s unemployment rates are higher. This result is in line with the evidence we have for Spain.