Parents with an Unemployed Adult Child: Labor Supply, Consumption, and Savings Effects

1. CENTER forDISABILITY RESEARCH Parents with an Unemployed Adult Child: Labor Supply, Consumption, and Savings Effects Stephanie Rennane, RAND RRC Annual Meeting August 3, 2017 Discussant Comments

2. Research Question We know that: • Children provide assistance when parents reach old age (e.g., McGarry and Schoeni 1995, 1997, O’Shaughnessy 2013, Dalton and LaFave 2017) • Parents provide assistance for children's economic shocks (e.g., Cox and Way 2011, Kaplan 2012, McGarry 2016, Edwards 2016)

3. Research Question We know that: • Children provide assistance when parents reach old age (e.g., McGarry and Schoeni 1995, 1997, O’Shaughnessy 2013, Dalton and LaFave 2017) • Parents provide assistance for children's economic shocks (e.g., Cox and Way 2011, Kaplan 2012, McGarry 2016, Edwards 2016) We know less about: • How do parents finance their assistance to adult children? • What is the impact on parents: retirement, well-being?

4. Share of Mothers Reporting Transfer to Adult Child

5. Share of Mothers Reporting Transfer to Adult Child

6. Methodology • Use the Panel Study on Income Dynamics (PSID) • Observe adult children linked to mothers • Exclude co-resident children • Do not observe separated/divorced parents • Lower bound on response? • Mother FE: within-parent variation unemployment spells over time • Assume: unemployment is unanticipated, random shock

7. Findings Presence of an unemployed child increases: • Monetary transfers from mothers to children • Labor supply of young mothers < 62 (~0.5 wks/yr) • Receipt of Social Security (among mothers >FRA) Presence of an unemployed child decreases: • Food consumption • Pension contributions, assets

8. Risk Sharing or Investment? 70% of unemployment spells are voluntary: • Is this a shock, or is it planned? • Do parents anticipate transfers from children later (when they have a better job?) Digging deeper: • What does ``voluntary'' mean? • What happens after unemployment spell? • Compare spells for voluntary, involuntary, and recently graduated

9. Policy Considerations Benefits are transferred to individuals, but shared with the family: • From parents to children, and from children to parents • Employment subsidies for young adults could help aging parents • Retirement income could be shared with children

10. Policy Considerations Benefits are transferred to individuals, but shared with the family: • From parents to children, and from children to parents • Employment subsidies for young adults could help aging parents • Retirement income could be shared with children Correlated shocks: • We worry a lot about how employment shocks for adults in their late-50s affects retirement, but impacts on children could be important too

11. Possible Extensions • Persistence of parental responses over time? • Marital status/family composition (for parents and children) • Compare with trends for co-resident children? • Reverse transfers after unemployment • Variation over the business cycle?