As new Graduates Return to Nest, Economy also Feels the Pain
(November 16, 2011, New York Times)
Currently there is a lot of uncertainty in the economy. Businesses are uncertain, consumers are uncertain and everyone is trying to get through this time the best as they possibly can economically. This usually means that people will hold back: consumers will not spend as much as they normally would, businesses will not hire new people very quickly and they will not make new big investments.
A lot of students would normally start to find their own living area once they graduate: rent an apartment or buy a house and buy furniture, insurance, food, and a lot of other things you need to live by yourself. They create new households and therefore new expenditures for the market. But due to the crisis and the uncertainty the last couple of years the graduates are deciding more and more to move back home. The employment rate is really high again lately, which gives no perspective for the graduates. Companies are not very likely to hire them because they are dealing with the uncertainty as well and since the graduates barely have any experience they are not the first people in line to be hired. This means no income for the graduates and therefore hard to live by yourself. Moving back home seems the best decision.
But by moving back home instead of buying their own homes and furniture the economy “loses” a big part of the output of the economy. This means that the aggregate demand will decrease and the GDP will decrease, holding all else constant, since the expenditures of the graduates represent part of the Consumption in the definition of GDP (GDP = C+I+G+X).
The fact that the aggregate demand of the economy decreases results into a surplus in the economy, which will cause the aggregate supply to decrease as well. This means that the companies will produce less, which again means that they will need fewer employees to work for them. So by moving back home and not participating as expected in the economy the graduates are creating a vicious circle. They are moving back home, because they do not have the certainty of finding a job, but by moving back home the chances for them to get a job are even smaller.
If the economy does keep growing and new jobs are created even though the graduates decide to move back home and decrease part of the consumption it is likely that they will buy a home in the coming future, because most graduates do not want to live with their parents any longer than necessary.
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