The effects of parental income on the living arrangements of single adult children in Japan

The purpose of this paper is to test whether the ‘bribe model’ as an explanation for why adult children live with their parents is valid in Japan. The bribe model argues that while parents are happy to live with their young adult child, adult children do not wish to live with their parents. As a result, parents have to ‘bribe’ their children with financial or non-financial transfers to induce them to live with them. Using micro data from the National Family Research of Japan (Kazoku ni tsuiteno Zenkoku Chousa) 1998 and 2003, we examine the effect of parental income on the propensity of young adult children to live with their parents, and investigate how co-residency affects the life satisfaction of parents and child. There are two main challenges in estimating the effects of parental income on the propensity of children to live with their parents. First, there is a potential endogeneity problem between the likelihood of children to live with their parents and parental income. Second, data on parental income is not available for children who live on their own. In order to deal with these two potential problems, we use the two sample instrumental variable (TSIV) method. The findings suggest that parental income has a negative not statistically significant impact on the propensity to cohabit in Japan. While children seem to be indifferent toward co-residence with their parents, co-residence has negative impacts on the marriage satisfaction and sex life satisfaction of parents. Thus, for parents privacy is a normal good in Japan, and the bribe model is not applicable to the Japanese case.