Living Arrangements and Family Formation in Japan

The decisions to leave home and to marry are critical decisions that are at the foundation of family formation with tradeoffs between the benefits from parental altruism and the advantages of marriage. This research presents a parsimonious heterogeneous agent macroeconomic model and uses large-scale micro data on Japan to study both issues jointly. This paper proposes three possible drivers in the mechanism: (1) the stronger economy of scale in Japan generated by high living cost, (2) the weak bargaining position of women on the living arrangement when they marry, and (3) the gender wage gap and the career interruption cost for women. The results suggest that high living cost discourage people to marry and live without parents and the bargaining structure encourage them to stay single and live with their own parents. The wage structure seems to have relatively weaker effects. In addition, the estimates on the preference suggest that individuals prefer not to live with parents-in-law and desire to leave parents' home, while marrying potential spouse is preferable.