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 o¤spring. Our …rst …nding is that search e¤orts 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 su¢ciently high wage; otherwise, they stay. In the latter case, both young adult’s and spouse’s search e¤orts 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.