Book examines economics of life choices among young adults

From the May 5, 2008, Princeton Weekly Bulletin

Young Americans are taking longer to finish college, buy homes and get married, delaying the signature events that social scientists have used to identify adulthood. In "The Price of Independence: The Economics of Early Adulthood," a new volume co-edited by Princeton economist Cecilia Rouse, a team of scholars from around the country explores the trends that have developed among 18- to 35-year-olds over the past 10 to 15 years.

The book, which Rouse co-edited with Sheldon Danziger, the Henry J. Meyer Distinguished University Professor of Public Policy at the University of Michigan, reveals that -- contrary to popular perception -- economics do not seem to be a major reason behind young Americans' slower transition into traditional adult roles. Contributors include Princeton faculty members Henry Farber, the Hughes-Rogers Professor of Economics, and Katherine Newman, the Malcolm Stevenson Forbes, Class of 1941, Professor of Sociology and Public Affairs, who co-wrote a paper with Sofya Aptekar, a graduate student in sociology and the Office of Population Research.

Rouse, the Theodore A. Wells '29 Professor of Economic and Public Affairs, focuses her research on the economics of education, with recent topics including the economic benefit of community college attendance and Florida's system of assessing the performance of public schools. She recently discussed "The Price of Independence" and the issues related to young adults' life choices.

The media is full of stories about young people living with their parents longer, especially in areas with expensive housing such as New Jersey. Is that a media myth or does the data support the idea that housing costs have led to this change in young adults' living arrangements?

Actually, the data don't support that perception so well. It does look as though in areas of the country where housing is more expensive, people are more likely to live with their parents, but the cost of housing doesn't explain much of the change in living arrangements.

First, let's consider some of the basic facts. While the media has focused on young people living at home, the bigger trend has been for young people to live with other people. The biggest increase has been in the percentage who live on their own or with a roommate or with others who are not a spouse.  

In terms of living independently, you can see that in parts of the country where housing is more expensive, young people are less likely to live on their own. But housing prices explain only a small part of the increase over the past 20 years, in part because the cost of owning a home actually fell because interest rates were so low.

What are some of the main factors behind this trend?

When the authors looked at the different potential economic factors -- debt, housing costs, the economy, etc. -- they found that these factors do play some role in some of these changing trends. We can see them in other OECD countries [democratic, open-market economy countries in the Organization for Economic Cooperation and Development], and you could argue that all these other countries have had the same economic trends that have been going on in the U.S. But you could also argue that in all of these countries, including the U.S., there have been big changes in the social norms.

What changing social norms could be responsible for the trends in delayed adulthood?

Some examples of such norms might include the advent of the pill (and the widespread use of other contraceptives). [Harvard economists] Claudia Goldin and Lawrence Katz have suggested that the introduction of the pill, which allowed women to have more control over the timing of their fertility, allowed them to invest more in their human capital -- that is, acquire more education; it also, obviously, allowed couples to have sex without being married without the nearly inevitable consequence of pregnancy. Both of these trends would likely delay both marriage and children. Another change is that many parents may now allow their adult children to have sex with their partners while still living in their homes; this also would generate a delay in getting married and leaving the natal home. Finally, if parents are not in a hurry to finish "parenting" when their children are 18, they may be more willing to support them for a longer period of time.

That said, there is variation within the U.S. population in such norms -- it has always been more common for young people to live with their parents into their 20s among immigrant communities, for example, so one must be careful about making generalizations that are too sweeping.

Are men and women approaching this period in their lives differently?

Women are marrying later and having children later, as are men. Women have a lot more opportunities today than they ever did before. There used to be marriage bars in some occupations, that when you got married you were out. You couldn't be a schoolteacher in some places once you got married. Now women can choose a job or career that they love, are engaged in and really enjoy; given this change, then why not put off the kids for another year or two? I think the fact that women just have a lot more choices is part of it.

Are these delays positive?

Katherine Newman and Sofya Aptekar wrote the paper suggesting that people in countries where more people are living with their parents, for example, they're less upset about it. Everybody does it! To the extent these "delays" become the norm, it may be not such a big deal. As more and more women are delaying [having children], it's not a stigma, it's the social norm.

The statistics essentially say that young adulthood has been redefined in last 10 to 15 years. What are the economic and social consequences?

One piece of economic news in the book is in the paper written by my colleague Hank Farber, in which he shows evidence that young people's jobs have shorter tenures than their parents. This suggests that there's a little more churning in the labor market, that things are a little more uncertain. Young people can't just sit back and say, "I've got my job at IBM. I'm set for life." What we don't know, however, even from this, is what this churning is going to do to lifetime wealth. The reason we do not know for certain is because traditionally the way to get big wage increases is by changing jobs. So traditionally young people got big wage increases in the beginning of their career by job-shopping. Thus, it could be that because of this new churning, especially if it's voluntary, young people will ultimately reach a higher standard of living over their lifetime. On the other hand, if they're getting fired, it may not be so good. In the data, it's hard to really distinguish a voluntary from an involuntary separation. As a result, I would say the jury's still out. One piece of evidence that suggests it's maybe not so good is the paper by [University of Michigan economist] Helen Levy that shows young people are taking longer to get jobs with health insurance, and health insurance is a signal of the quality of the job. So maybe that's a signal that this job-shopping isn't going to be so good. Overall, however, it's so new that we don't really know.