Introduction
This chapter follows and updates an empirical study of Parisi (2008) about the link between the poverty status of young people who leave home and the economic status of their family of origin. It is motivated by three stylized facts. First of all is the need to depict the effect of the economic crisis on leaving home and poverty in the southern European countries. Figure 10.1 shows that there are differences before and after 2008 in the probability of living in the parental home. In particular, it seems that after the economic crisis the share of young southern Europeans staying at home increases. This pattern is completely different from that observed for their northern counterparts such as the UK. Given the data restriction, we can only consider the first part of the economic crisis following the 2008 subprime crisis in the US and we have to disregard the sovereign debt crisis that affected Europe after 2010.
In fact, the starting point of the financial crisis was the 2008 subprime crisis in the US causing 465 bank failures between 2008 and 2012. European countries faced a major economic recession in 2009, followed by the current sovereign debt crisis from 2010. The 2009 economic crisis gave incentives to all European countries to increase their public debt to limit the detrimental effects of the crisis itself. To do so, they implemented tax reductions and increases in public expen-diture to support aggregate demand in line with the Keynesian principles (i.e.
government should intervene through fiscal policy to weaken any crisis affect-ing aggregate demand). Some European countries have also increased their pub-lic debt to save large domestic banks from failure through an increase in the money supply. Ireland was the most dramatic case from this perspective. All this led to a worsening of the economic situation in 2011 because of the sovereign debt crisis, and consequently it also led to loss of trust by foreign investors.
Most European countries already had a high level of debt before the financial crisis. The ratios of public debt to GDP in 2007 were 64.2 per cent in France, 65.2 per cent in Germany, 44.2 per cent in the UK, 107.4 per cent in Greece (all figures from Eurostat). With the economic crisis and Keynesian policies, these ratios rose in 2010 to 82.3 per cent in France, 82.5 per cent in Germany, 79.4 per cent in the UK, 148.3 per cent in Greece, 115.3 per cent in Italy and 96.2 per cent in Portugal. In Spain it rose in 2013 to 92.1 per cent. The rise in public
Leaving home and poverty 171
debt has dramatically hampered the budgetary situation of many European countries, in particular for the PIIGS countries: Portugal, Ireland, Italy, Greece and Spain. The additional debt resulting from the financial crisis has led to major difficulties for countries financing their debt. This constitutes an economic prob-lem as it forces European countries to make every effort to gain trust vis-à-vis investors by reducing their public deficits through restrictive fiscal policies, (i.e. reducing public expenditure and increasing taxes) in a period where the economic crisis had already reduced consumption and private expenditure. The sovereign debt crisis proceeded are as follows: in spring 2010 Greece claimed economic help from the European Union and International Monetary Fund, foll-wed in April 2011 by Portugal and in November 2011 by Ireland; in July 2011 the Private Sector Involvement (PSI) plan was launched to support Greece. Fol-lowing the PSI and the sovereign debt crisis, Italy went back into recession in 2011 (Blundell-Wignall 2012; Neri and Ropele 2013).
Secondly, young people in southern European countries (SECs) leave home much later than do young people in other European countries. According to Eurostat data, in 2012, the mean age for men was 31 years in Italy and 30 years in Spain, Portugal and Greece; for women, 28 in Spain, Portugal and Greece and 29 in Italy. In the UK, by contrast, the mean age of young men leaving home is 24.7 and of young women 23. Figure 10.2 plots the mean age at leaving home between 2003 and 2012 for SECs and the UK. Delayed nest-leaving has important economic consequences, as it may affect young adults’ reservation wages, their participation rates and their wage trajectories.
Finally, it is well known that poverty is intergenerationally transmitted, thus individuals from an economically deprived background have fewer opportunities in the labour market (Farace et al. 2014). If so, young people from poorer fami-lies have a higher probability of being poor after leaving home than youths from better-off families (Ayllón 2014).
65.00 60.00 55.00 50.00 45.00 40.00 35.00 30.00 25.00
2004 2005 2006 2007 2008 2009 2010 2011 2012 Greece Spain Italy Portugal United Kingdom Figure 10.1 Percentage of individuals aged 18–39 living with their parents Source: Eurostat
172 Fernanda Mazzotta and Lavinia Parisi
Figure 10.3 shows the percentage of young Europeans at risk of poverty, using the AROPE indicator that includes the risk of poverty (i.e. the percentage of people below the poverty threshold, which is set at 60 per cent of the national equivalized disposable income after social transfers, the percentage of people in a situation of severe material deprivation and finally the percentage of people living in a household with very low work intensity). The percentage of people at risk of poverty (aged 18–24) increased dramatically in all the five countries after 2008. The worst condition, considering the difference between the highest and the lowest figure of the period under consideration, is for Greece and Spain.
Greece Spain Italy
Portugal United Kingdom
31.00 30.00 29.00 28.00 27.00 26.00 25.00 24.00 23.00 22.00
2004
2003 2005 2006 2007 2008 2009 2010 2011 2012
Figure 10.2 Mean age at leaving home Source: Eurostat
Greece Spain Italy Portugal United Kingdom 50.00
45.00 40.00 35.00 30.00 25.00 20.00 15.00
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Figure 10.3 Percentage of people aged 18–24 at risk of poverty and social exclusion (AROPE)
Source: Eurostat
Leaving home and poverty 173 When examining young people leaving home in SECs, we adopt a wider age range than in most studies on youth poverty. Therefore, the definition of ‘young people’ in this chapter differs from that generally used in the literature. Young people are usually ‘those who are no longer children, but who belong to an age group many of whose members have not yet completed all the processes of tran-sition to adulthood’ (Aassve et al. 2005). Youth is usually considered as starting around 15 years old and ending around 25.1 In this paper, young people are aged 18–34 years and have completed most of the steps of transition to adulthood, namely leaving the parental home and forming a partnership.
There are several reasons why young southern Europeans leave home later than their northern European counterparts. The decision could be driven by factors such as a high rate of unemployment or high housing prices (Ermisch 1999; Giannelli and Monfardini 2003; McElroy 1985). However, those factors are not considered here. In addition, living in the parental home may increase the utility of both par-ents and children. On the one hand, children may prefer to live in their parental home because their income is higher than it would be if they were to leave home and because of the care provided by their parents. On the other hand, parents may greatly value having children at home longer and so offer inducements to keep their children at home as long as possible (Manacorda and Moretti 2006). Also young adults may stay at home in order to help to reduce the poverty risk of their parents (Cantó and Mercader-Prats 2001; Sanchez and Mercader-Prats 1998) and to provide care for their aged parents. Leaving home is strongly correlated to employment conditions, and the length of time that a young person is unemployed influences also the time she/he remains in the parental home. Moreover, leaving home typically occurs at the same time as partnership formation: the median age of leaving home and partnering is the same in SECs (Iacovou 2010). Thus we need to control for marital status when analysing leaving home transitions.2
Many studies find a strong link between leaving home and youth poverty and emphasize that leaving home is more important in explaining poverty among young people than other factors such as employment, presence of children or cohabitation. Aassve et al. (2005) found that young southern Europeans delay leaving home because they know that they are more likely to enter poverty than those who decide to stay in the parental home. Across countries, the higher the proportion of youth (aged 20–24) leaving home, the bigger the gap in poverty rates between those at home and those leaving. Thus, it seems important to anal-yse youth poverty and leaving home simultaneously.
The poverty status of young people after leaving home may be affected by all those variables that influence earnings, such as education (Becker 1965; Mincer 1974), gender (Bettio 2008), health, financial pressures (Blau and Kahn 1996) and labour market conditions.3 However, the focus of this chapter is family back-ground. It influences both the duration of unemployment among young people – consequently the permanence in the parental home – and the expected earnings of young people – consequently the poverty status after leaving (Farace et al., 2014).
Our contribution is to look at the effect of parental income on young people’s pov-erty status, conditional on whether they have left home. Unlike previous research,
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the study also provides some preliminary results on the effect of the economic crisis on poverty status and leaving home. The main aim of the chapter is to look at the relationship between parental income and poverty status after leaving home using an updated sample of young people in SECs. We do not claim to show any causal impact of the economic crisis on the variables of interest, nevertheless we can depict the SEC situation with regard to leaving home and poverty given that the sample of young people (drawn from the European Union Statistics on Income and Living Conditions (EU-SILC))4 covers a period between 2004 and 2010. Moreover, the longitudinal aspect of the survey allows us to follow people for at least a year to consider the transition into and out of poverty and into and out of the parental home.
As already mentioned, given data restriction, we can only consider the first part of the economic crisis following the 2008 subprime crisis in the US, and we have to disregard the sovereign debt crisis that affected Europe after 2010.
This chapter focuses on a subsample of young people who have left home, in order to analyse youth poverty after leaving home. There may be an association between parental income and leaving home: the higher the parental income, the less likely a youth is to leave home or vice versa. This suggests a potential sample selection bias because there are some observable and unobservable factors that determine whether a young person has left the parental home and, at the same time, affect the outcome of primary interest (youth poverty status). We use a stan-dard sample selection model in order to address this issue.
The estimates show that leaving home is associated with a higher chance of hav-ing low income: there is a positive association between the probability of leavhav-ing home and the probability of being poor. Moreover, the poorer the family of origin, the more likely it is that the leaver will be poor. Higher chances of being poor are associated with having lower educational qualifications: one explanation might be that remaining in the parental home longer increases the chances of getting a higher educational qualification and hence a better paid job. Moreover, there appear to be differences in the various patterns across the four SECs studied. Finally, the eco-nomic crisis seems to affect the probability of leaving home but not the probability of poverty and it seems that it worsens the Italian situation among SECs.
The chapter is structured as follows. In the next section we describe the theoret-ical and empirtheoret-ical literature on the effect of parental characteristics on income and leaving home. Then we describe our methodology and summarize the data. After presenting our results, we offer some conclusions.
Parental characteristics, leaving home and poverty
Family background influences the duration of unemployment among children and consequently the permanence in the parental home (Farace et al. 2014). The the-oretical and empirical literature defines three channels of transmission: the fami-ly’s financial and cultural circumstances (such as education) and family networks.
The first two channels affect both the opportunity to access better education and support children’s job search efforts. At the micro level, economic theory (Becker 1975) provides a framework to analyse the association underlying the positive
Leaving home and poverty 175 correlations between parents’ and children’s education and consequently parents’ and young people’s income. The intergenerational mobility literature has explored this link. With respect to education, empirical studies show that wealthier families can afford high-quality schools for their children (Checchi and Zollino 2001). Regarding earnings, the strong link between parents’ and children’s incomes means that Italy is one of the least mobile OECD countries, trailing only the UK in terms of ‘intergener-ational earnings elasticity’ (Checchi et al. 1999; Mocetti 2007; OECD 2009).
Family background can also influence the reservation wages of offspring, accepted starting salaries and the decision whether to accept a given wage offer. For instance, high family income enables parents to provide financial support during their off-spring’s employment search. According to standard job search theory, increased benefits during this search raise the young person’s reservation wage and accepted starting salary. Consequently, wealthier families can mitigate liquidity constraints, allowing their children to devote less effort to and extend the job search process (i.e.
allowing them to be unemployed for a longer period) to achieve a better match in the labour market. However, individuals from less advantaged families are credit constrained; hence, they might be forced to accept any job offer to reduce their unemployment duration. This interpretation would suggest a positive relationship between higher family socioeconomic status and unemployment duration and thus delay in leaving the parental home. Clearly, financial support and education are not the only channels through which family members can influence the employment prospects of their children. In the Italian case, networks play an important role by providing information on the quality of education and jobs, thereby increasing the children’s opportunities. Farace et al. (2014) analyse the unemployment duration of children as affected by their family background. They find a residual effect of parental economic conditions on unemployment duration that could be the result of educational quality and/or network effects. Children from the wealthiest fam-ilies may be able to afford high-quality school and university and also may have better information and search strategies, thus reducing their unemployment dura-tion. According to these statistics leaving home is positively correlated with the probability of finding a job (Mazzotta and Parisi 2015), thus higher family income can have an ambiguous effect on the unemployment duration (Mazzotta 2007) and consequently on leaving home, speeding up or delaying entry into the job market.
Several studies have analysed both theoretically and empirically the effect of parental income on the probability of staying in or leaving the parental home.
Parents prefer to have children at home if their income is low and parents need to transfer money to them. This is because the monetary transfer costs are lower when the children live at home; moreover, in the US cohabitation rates tend to fall as parental income rises. This would suggest that for US parents privacy is accepted as important (see Rosenzweig and Wolpin 1993, 1994).
On the other hand, if parents are assumed to be partially altruistic towards their children, they will provide financial help to an independent child when his/her income is low. Nevertheless, children of altruistic parents have a lower income threshold for independence than those with more selfish progenitors, thus those in the first case are more willing to leave (Becker et al. 2005).
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A study for the UK suggests that parental income positively influences the deci-sion to leave home only if the parents have a high preference for cohabitation.
On the contrary, if children are relatively poor with respect to parents, parental income may have a negative effect on the probability of leaving (Ermisch 1999).
Thus theoretical models allow for both positive and negative effects of parental income on nest leaving. This depends on the way in which parents express their altruism when the child coresides and when he/she lives independently. Angelini and Laferrère (2012) distinguish two channels for parental altruism: the first con-siders parental help in paying the child’s expenses when independent. The second considers subsidizing consumption when he/she coresides more than would be the case under independence, because of a higher altruism in the former situation, or because it is cheaper to transfer in that case.
Finally, Iacovou (2010) represents the closest study to our analysis. She exam-ines the factors influencing young people’s decision to leave the parental home in Europe, focusing on the role of income: the young person’s own income, and that of his/her parents. She uses a logit model when departures from the parental home are considered as a single category, and a multinomial logit when three different destinations on leaving home are included: leaving as a single person; leaving in order to live with a spouse or partner; and leaving for educational purposes. In all groups of countries, the young person’s own income is positively associated with the probability of leaving home. However, the effects of parental income are more complex. Everywhere, higher parental income is associated with a lower likelihood of leaving home to live with a partner at young ages, and a greater likelihood at older ages. But whereas in Nordic countries higher parental incomes accelerate home leaving to partnership at all ages after the late teens, this effect is not seen until a much later age in southern Europe, and not until after age 35 for southern European men. This is consistent with existing theory about cross- country differences in the nature of family ties, suggesting that parents’ prefer-ences for independence versus family closeness differ between countries, and contribute (together with differences in young people’s socioeconomic situations) to the widely differing patterns of living arrangements observed across Europe.
With regard to the link between poverty status and leaving home, it seems that there is a strong association. Aassve et al. (2006), examining annual longitudinal data for 13 European countries, find that poverty and deprivation were gener-ally higher for young adults in the year immediately after they left home than in the year before or for other young adults who remained at home. Parisi (2008), focusing on four SECs, finds that leaving home to live with a partner increased young people’s risks of entering poverty in Portugal and Spain but not in Italy and Greece. A more recent study (Ayllón, 2014) uses a dynamic trivariate probit model for poverty, employment and leaving the parental home in Europe. Her model allows for feedback effects between the three processes dealing with the endogeneity problems that arise when studying life transitions which are possibly taking place in a sequential manner. The main results show that economic hard-ship today increases in itself the likelihood of being poor tomorrow among young individuals. However, in Italy, fewer young people live in economic hardship but they have greater difficulties in leaving it behind. Moreover, her findings show
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