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Living arrangements in Europe: whether and why paternal retirement matters

Abstract

This paper uses retrospective micro data from eleven European countries to investigate the role of paternal retirement in explaining children’s decisions to leave the parental home. To assess causality, I use a bivariate discrete-time hazard model with shared frailty and exploit over time and cross-country variation in early retirement legislation. Overall, the results indicate a positive and significant influence of paternal retirement on the probability of first nest-leaving of children residing in Southern European countries, for both sons and daughters. Focusing on Southern Europe, I find that the increase in children’s nest-leaving around the time of paternal retirement does not appear to be justified by changes in parental resources. Rather, channels involving the supply of informal child care provided by grandparents or the quality of the home should be the focus of study.

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Notes

  1. Fathers who have more than one child in the sample are overrepresented because each child is treated as a unit in the analysis. In SHARE, questions on the children’s nest-leaving age are asked for a maximum of four children.

  2. See Chiuri and Boca (2010) for a discussion on the gender differences in nest-leaving decisions across Europe.

  3. Information on the retirement legislation in Greece is obtained from Duval (2003).

  4. These two destination states are assumed to be absorbing. Although this assumption appears to be natural for paternal retirement, it could be somewhat less intuitive for nest-leaving because the child could go back to the parents’ home after the first move-out. Because information on whether the child returned home is not available in the SHARE data, consistent with the previous literature, I assume that nest-leaving decisions are irreversible.

  5. As noted by Van den Berg et al. (2004), a piecewise constant function is the most flexible specification used for duration dependence functions.

  6. A finite mixture model describes the unobservable heterogeneity in terms of a finite number of latent classes that exist in the population (McLachlan and Peel 2000). Finite mixture models have recently been used by many authors, including, for instance, Bago d’Uva and Jones (2009), Balia (2014) and Angelini et al. (2013).

  7. Following Melberg et al. (2010), I perform the analysis using two latent classes. The reason is that the unobservable heterogeneity is considered at the child–father level. For example, there might be a number of unobservable factors, such as ability, transmitted from fathers to their children that may not be well captured by observable characteristics, and, consequently, they enter the error term.

  8. People may have expected the early retirement age to be raised at some point in the future, but the exact timing was most likely not anticipated.

  9. Alternatively, given that eligibility rules vary by country and paternal age, I cluster the standard errors by these two dimensions and find that the results remain materially unchanged.

  10. This construction follows Jenkins (2005) and Melberg et al. (2010).

  11. This starting age for children is consistent with prior research (among others, Manacorda and Moretti 2006; Billari and Tabellini 2010; Becker et al. 2010). In my duration analysis, this assumption implies that children under the age of 18 years are left-truncated.

  12. The vast majority of fathers considered in my sample are at least in their 40s when their child is 18. The rationale for this lower bound is that even fathers in their 40s experience a positive, albeit small, risk of transition into retirement.

  13. This is a commonly-used iterative procedure for computing the maximum likelihood estimates in problems where the data are incomplete or have missing values. See Jacho-Chávez and Trivedi (2009) for a recent discussion of this computational approach within the finite mixture framework. Hans Melberg graciously provided me with his Stata program for the EM algorithm.

  14. A visual analysis of the dynamics of the hazard for paternal retirement shows that as expected, in all European regions the hazard of paternal retirement increases with time. Due to space considerations, this figure is not reported here, but is available from the author upon request. It is also available in an earlier working paper (Stella 2014).

  15. Specifically, I found that the cross-region differences in the share of adult children that left the home after paternal retirement are enormous, ranging from 42 % in Southern Europe to 15 % in Central Europe and to 6 % in Northern Europe. In other words, when fathers retire, only a very limited proportion of adult offspring in Northern and Central European countries is still living with their parents. This table is available in an earlier working paper (Stella 2014), and is also available from the author upon request.

  16. Including controls for the presence of kids at the time of the interview yields substantially unchanged results.

  17. In order to save space and increase readability, Table 5 reports the estimated coefficients only for the hazard of children’s nest-leaving, which is the outcome of main interest in this paper. Overall, the results for the hazard of paternal retirement suggest that in accordance with the model in which unobserved heterogeneity is not allowed (see Table 4), eligibility rules have a significant influence on actual retirement. These results are available from the author upon request, and are also available in an earlier working paper (Stella 2014).

  18. Furthermore, the full set of results for Northern and Central Europe, as well as for the full sample are available in an earlier working paper (Stella 2014).

  19. The following question was asked: “In which year did you first receive this pension?”. Approximately 20 % of the cross-sectional sample reports a retirement year that differs from the year in which pension benefits were first received.

  20. As noted by Bolin et al. (2008), Southern European countries were not only undergoing similar economic conditions and were very similar in terms of welfare state regime, family structure and culture, but they also had similar demographic patterns of intra-generational co-residence and patterns of support for the elderly.

  21. García-Gómez et al. (2014) document that Spanish employed who leave employment and transit into unemployment may receive a severance payment from the employer. To overcome this issue, I excluded from the sample Spanish individuals who declare themselves as retired because they were made redundant. The exact question used to elicit this information was stated as follows: “Please look at card 21. For which reasons did you retire?”. However, the main results still hold if these individuals are included.

  22. For Italy, information on retirement severance payment is obtained from Miniaci et al. (2003). For Greece and Spain, I acknowledge that institutional details have been integrated by personal communications with Olympia Bover, Pilar García-Gómez, Athanasios Tagkalakis and Platon Tinios.

  23. As in Angelini et al. (2013), the term “self-employed” refers to those individuals who have been self-employed at any stage during their career. In addition, I demonstrate that employed and self-employed do not differ significantly in a large number of observable characteristics, thus providing empirical evidence in support for the claim that self-employed workers provide an appropriate comparable group for analyzing the differential effects of paternal retirement. For brevity, these descriptive statistics are not reported here, but are available from the author upon request, and are also available in an earlier working paper (Stella 2014).

  24. In Southern European countries, leaving the nest only at the time of marriage and childbearing is a widespread trend.

  25. To be more precise, SHARE provides information on the number of rooms available in the household’s accommodation (including bedrooms but excluding kitchen, bathrooms, and hallways) at the interview year of wave 2. SHARE also contains information on the number of years of residence in the current accommodation, which enables me to retain only child–father pairs where the current accommodation was the same to that at the time of children’s nest-leaving (approximately 84 % of the cross-sectional sample). However, SHARE does not provide information on the number of persons in the household at the time of children’s nest-leaving. To overcome this lack of information, I created a proxy variable by summing the household size at the interview year of wave 2 and the number of children that have already left home at the year of the interview. Overall, I note that Greece is the country with the lowest median of the number of rooms per person at the time of children’s nest-leaving (0.75), whereas Italy and Spain present the same median (0.8).

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Acknowledgments

I am grateful to Daniele Paserman and Guglielmo Weber for guidance at each stage of this paper. I thank Viola Angelini, Laura Salisbury, Marco Albertini, Silvia Balia, Erich Battistin, Massimiliano Bratti, Alessandro Bucciol, TszKin Julian Chan, Michele De Nadai, Osea Giuntella, Claudia Olivetti and Robert Willis for their helpful feedback, and two anonymous referees whose careful review led to many improvements. I owe special thanks to Hans Melberg, who shared his Stata code with me. I would like to thank Olympia Bover, Pilar García-Gómez, Athanasios Tagkalakis and Platon Tinios, who provided useful insights on the severance pay legislation in Spain and Greece. I would also like to thank participants at the Society of Labor Economists (2014), the European Association of Labour Economists (2014), the Population Association of America (2014), the European Economic Association (2014), the European Society for Population Economics (2014), the SHARE User Conference (2013), as well as seminar attendees at the University of Wuppertal, IZA and the IMT Lucca Institute for Advanced Studies for their comments. All errors are my own.

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Stella, L. Living arrangements in Europe: whether and why paternal retirement matters. Rev Econ Household 15, 497–525 (2017). https://doi.org/10.1007/s11150-016-9327-z

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Keywords

  • Living arrangements
  • Retirement
  • Pension reforms
  • SHARE

JEL Classification

  • J13
  • J26
  • J01