PenPenWrites

While families struggle with the financial and emotional impact of having grown children move back home–and take up residence in their old bedroom–there are some interesting macroeconomic effects.

Here's how a Mark Thoma, a well-respected economist, blogged about the implications of re-nesting. First he looks at a phenomenon he calls "Family as insurance:"

The
parental home as unemployment insurance

"It is well known that in Spain and especially Italy, people in their
twenties and even thirties stay with their parents until they find a
job, and they often wait for the "perfect" job. This looks like an
unemployment insurance with infinite duration with substantial moral
hazard, which has lead to sky high youth unemployment rates in Europe.

Greg Kaplan is
documenting that something similar is happening in the United States.
…many of those who do not attend college
return home during unemployment spells, much like college students
return home over the Summer. This analysis is very nicely done with an
estimated structural model that features a repeated game between
children and altruistic parents. In particular, this allows us to
understand why the savings rate of young people is so low. As they have
the option of returning to their parents, they see no need to build up
any precautionary savings. This means also that programs like
unemployment insurance have little impact for them."

Then Thoma comes up with his kicker: "Just
thinking of all things parents do to provide the insurance, yet minimize
the moral hazard problem. The last place I would have wanted to live at
that age
was with my parents, and I'm pretty sure the feeling was mutual."