Abstract
Abstract The risk of labor market, health, and asset-value shocks comprise profound retirement savings challenges for older workers. Parents, however, may experience added risk if their children experience adverse labor market shocks. Prior research has shown that parents support their children financially through an unemployment spell. In this paper, we also provide evidence of financial support from parents and investigate if this financial support is accompanied by adjustments to parental consumption, income, or savings behavior. With longitudinal data on mothers and children from the Panel Study of Income Dynamics, we use within-mother variation in behavior to identify the effect of a child’s labor market shock on parent outcomes. We find evidence of a decline in consumption, an increase in labor supply, and a decrease retirement savings, though the results are heterogenous among mothers. Our results point to aggregate inefficiencies and inequities that may result from family risk sharing.
Highlights
Families often serve as the first line of defense against adverse events — for example, spouses enter the labor force or increase their hours of work when a partner is laid-off (Cullen and Gruber, 2000), grandparents provide child care or loans when a child is sick (Bianchi et al, 2010), and parents respond to the economic needs of their children through various forms of assistance, such as offering co-residence or sending money (Wiemers, 2014; Kaplan, 2012; McGarry, 2016; Edwards, 2017)
Prior literature has established that parents send financial assistance to their children in certain instances, including unemployment (Cox and Way, 2011, Edwards, 2017); we want to confirm that finding within our sample before examining other outcomes
Off of a mean of $329, this is equivalent to a 22 percent increase in the amount of transfers sent to a child in the year of a child’s unemployment spell
Summary
Families often serve as the first line of defense against adverse events — for example, spouses enter the labor force or increase their hours of work when a partner is laid-off (Cullen and Gruber, 2000), grandparents provide child care or loans when a child is sick (Bianchi et al, 2010), and parents respond to the economic needs of their children through various forms of assistance, such as offering co-residence or sending money (Wiemers, 2014; Kaplan, 2012; McGarry, 2016; Edwards, 2017). We examine the effect of a child’s unemployment on the following parental behaviors: assistance to children (measured in reported cash transfers), consumption (measured in household food consumption), income (measured in labor supply and program participation), and savings (measured in savings rates and asset values).We do, find results in each category, though they vary by the age and situation of the parent. We miss parent-child relationships of divorced or separated parents who are not living with the member of the household that is biologically linked to the original PSID sample This is a larger issue for fathers, since mothers are considerably more likely to maintain custody of children.
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