The Long and the Short of Household Formation

Abstract

Household formation has been running well below trend in the United States. This article studies the determinants of household formation and how they evolve over the long and short runs. There are three main findings. First, the aging of the population has pushed up the headship rate and household formation. Second, after stripping out demographic effects, offsetting changes in behavior among younger and older adults have left the behavioral component of the headship rate with no pronounced trend. Finally, the short‐run dynamics of headship reflect the business cycle, implying that household formation could increase substantially as the labor market recovers.

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