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Tuesday, May 18, 2010

Parents as Unemployment Insurance

Family as insurance:

The parental home as unemployment insurance, Economic Logic ...Greg Kaplan is documenting ... that many of those who do not attend college return home during unemployment spells, much like college students return home over the Summer. This analysis is very nicely done with an estimated structural model that features a repeated game between children and altruistic parents. In particular, this allows to understand why the savings rate of young people is so low. As they have the option of returning to their parents, they see no need to build up any precautionary savings. This means also that programs like unemployment insurance have little impact for them.

Just thinking of all things parents do to provide the insurance, yet minimize the moral hazard problem. The last place I would have wanted to live at that age was with my parents, and I'm pretty sure the feeling was mutual.

    Posted by on Tuesday, May 18, 2010 at 12:15 AM in Economics, Social Insurance | Permalink  Comments (16)


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