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

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 labor supply, program participation, consumption, or savings behavior. With longitudinal data on parents and children from the Panel Study of Income Dynamics, we use within-parent variation in behavior to identify the effect of a child’s labor market shock on parental outcomes. We find results vary by the parent’s age: Parents younger than 62 years old increase labor supply and decrease savings rates, all parents reduce assets and usual food consumption.