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STAY-AT-HOME MILLENNIALS: Young adults copy friends and live with parents

Peer pressure means that more people are living with their parents because their friends are happy to do the same. That is the central finding of research by Effrosyni Adamopoulou and Ezgi Kaya, to be presented at the Royal Economic Society''s annual conference in Brighton in March 2016.

Their study analyses data from the National Longitudinal Study of Adolescent Health in the United States. It finds that young people are mostly guided by their friends and the choices they make. Women and ethnic minorities are more likely to conform to social norms, and people from richer families are even more likely to be influenced by their peers (most likely because it is even easier for them to move out when they want to).

The authors show that this is not just because people choose friends who make similar decisions to them. It is likely to be because of the reduced stigma of living with one''s parents if somebody else is happy to do so, and perhaps because they want to imitate their friends.

The millennial generation reached their adulthood in the wake of the Great Recession, but five years later people increasingly choose to live at home. This research is important for policy-makers who want to encourage young workers to be more mobile.

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Young adults are increasingly reluctant to fly the nest and tending to stay in their parental home longer. A new study by Effrosyni Adamopoulou and Ezgi Kaya investigates how peers influence this decision. It turns out that the choice to continue living with parents is influenced by the behaviour of peers. The main finding of the study is that there is a greater tendency to leave the parental home among young adults with friends who have already made a similar choice.

The study analyses data from the National Longitudinal Study of Adolescent Health (Add Health) on a representative sample of adolescents in the United States followed until young adulthood. The authors exploit some unique characteristics of the data and the richness of the available information.

Their analysis accounts for various demographic and socioeconomic characteristics of young adults as well as the local labour and housing market conditions; and it uses the differences in the timing of leaving parental home to investigate the causal effect of the nest-leaving behaviour of friends on the choice of the individual.

The authors find that there are statistically significant effects on the decision of young adults to remain or not at the parental home that stem from the respective choices made by their friends. What is more, there are differences by gender and ethnicity: females and individuals who belong to ethnic or racial minorities tend to conform to the social norm more than the rest of the young population.

The authors also find that young adults that come from high-income families are influenced by their peers more in their nest leaving decisions. This result reflects the fact that one can actually move out of the parental home only if there are enough financial resources.

The authors show that the similarity between the nest leaving behaviour of an adolescent and his/her friends is neither due to the simple fact that people select friends with similar behaviour to their own nor to the common factors that may have affected the living arrangements of both the adolescent and his/her friends.

Furthermore, the complementarities between friends that move together or the maintenance of friendship ties seem not to be the main reason behind peers'' influence. The authors conclude that other mechanisms such as the reduced stigma of living with parents during young adulthood or simply imitation among friends may lie behind the peer effect.

This is relevant for debates over evaluating policies that are intended to boost youth emancipation or mobility. In the presence of peer effects, policies that target a specific group of people may have a snowball effect on other groups. The generation that reached adulthood around the turn of the twenty-first century, also known as the ''millennials'' experienced the Great Recession in the beginning of their professional careers.

But almost five years after the end of the Great Recession in the United States, even though labour market conditions have greatly recovered, the proportion of young adults living with their parents remains high and in the age group 20-24 it keeps on increasing (See figure 1). The new findings suggest that in the presence of positive peer effects, the increasing trend may persist regardless of the labour and housing market conditions.

Do peers affect young adults' decision to fly the nest? – Effrosyni Adamopoulou is at the Bank of Italy and Ezgi Kaya is at Cardiff University