DP5339 Job Insecurity and Youth Emancipation: A Theoretical Approach

Author(s): Sascha O. Becker, Samuel Bentolila, Ana Fernandes, Andrea Ichino
Publication Date: November 2005
Keyword(s): emancipation, job security, option value
JEL(s): D1, J1, J2
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5339

In this paper, we propose a theoretical model to study the effect of income insecurity of parents and offspring on the child's residential choice. Parents are partially altruistic toward their children and will provide financial help to an independent child when her income is low relative to the parents'. We show that first-order stochastic dominance (FOSD) shifts in the distribution of the child's future income (or her parents') will have ambiguous effects on the child’s residential choice. The analysis identifies altruism as the source of ambiguity in the results. If parents are selfish or the joint income distribution of parents and child places no mass on the region where transfers are provided, a FOSD shift in the distribution of the child’s (parents’) future income will reduce (raise) the child’s current income threshold for independence.