Young adults take a huge hit if they get laid off. Even 20 years on, their earnings may not fully recover. But those who live near their parents tend to bounce back more quickly—within 10 years, they can make up what they lost in earnings.
A new analysis by the Cleveland Federal Reserve finds that this isn’t just a correlation: Having parents nearby is why some adults rebound faster. That’s mainly because parents provide a crucial type of support: childcare.
The study finds that for young adults without kids, proximity to their parents didn’t really matter in how they fared after a job loss. But for those who were parents themselves, it made a huge difference. Via the report:
We find that the positive earnings effect is concentrated among workers who have children of their own, a situation which suggests that the parents’ help in caring for the grandchildren is important in achieving the healthier earnings recovery.
Childcare can be a major expense and often ends up taking up a bigger chunk of the family budget than even rent. It can cost anywhere from $407 a month in Mississippi to $1,886 a month in Washington, D.C. And if parents live in one of the many “childcare deserts,” they may have to pay even more—in time and money—to drop their kids off at daycare that’s out of the way. For all these reasons, this kind of support is often out of the question for working families.
It’s obvious, then, why having parents nearby is such a boon. It functions sort of like a safety net, allowing people the time and resources to get their careers back on track—to go to job interviews, invest in new skills, or go back to school. Parents can also help by setting their kids up with new jobs at their own place of work, or by connecting them with employment opportunities elsewhere. What the study couldn’t find support for is whether parents’ ability to provide housing is a factor. Other research, however, has shown the benefits of young adults moving back in with parents during periods of economic uncertainty.
Ultimately, the takeaway of the Cleveland Federal Reserve study isn’t that young adults who have kids—or want to have kids—need to pack up a U-Haul and move closer to mom and dad. In fact, doing that comes with some tradeoffs. According to the authors, people living near their parents who haven’t experienced job loss actually tend to make less money, on average, than those living further away. So it’s possible that some young adults are missing out on more fruitful career opportunities by choosing—or being compelled—to live closer to their families.
What the authors suggest is that policymakers need to start thinking about ways to increase access to the kind of support parents provide for young adults, so that they are not derailed by job losses. The report doesn’t go into how costly it would be to provide such services, but it does mention European countries as having unemployment policies that integrate a variety of services:
To address issues with childcare, job seekers could be paired with flexible, subsidized childcare services that could support them through their job search into the first few months of new job.
Some private companies have started seeing the benefits of on-site childcare: If parents know their kids are safe, they’re much more likely to be able to focus on work and be more productive. But an investment in child care subsidies at a larger scale could extend those benefits to the entire economy.