The Dynamics of Household Membership and Labour Supply Decisions of Young Adults in Britain: A Panel Data Approach*

This paper examines the determinants of the decision to leave home and the decision to work of young adults in Britain. These behavioural outcomes are jointly modelled using a bivariate dynamic setting that accounts for unobserved heterogeneity estimated on the first fifteen waves of the British Household Panel Survey. We augment previous research by examining the effect of current parental labour supply which could affect young adults’ decisions through time spent in the household rather than income. Results show that, for men, parental labour supply rather than current parental income affects the two decisions. Strong gender differences emerge from this analysis where unobserved factors seem more important for women and men tend to be affected by parental characteristics more. Furthermore a model with age interactions shows ageing changes the process more for men than women. On methodological grounds, this paper shows that the two decisions are highly correlated and should therefore be studied jointly but separately for men and women. JEL Classification: D10; J22;C15;C33