THE IMPACT OF REAL RENTS AND WAGES ON HOUSEHOLD FORMATION

Although the economic literature has analyzed some components of the headship decision, study of household formation has been primarily in the realm of demography. We expand the demographic model to include economic determinants of the decision to remain with parents or not, and to live with a group or separately. We focus on measuring the effect of spatial variations in rental costs on the probability of forming a household. Our results, based on a sample of 2,573 youths in their twenties, indicate that the cost of housing and potential labor earnings are important variables in explaining this probability.