Chapter 5 The Economics of Fertility Fertility trends Modeling fertility decisions Evidence Fertility trends Modeling fertility decisions Evidence

measuring fertility birth rate  # births per 1000 population fertility rate  # births per 1000 women, birth rate  # births per 1000 population fertility rate  # births per 1000 women, 15-44

total fertility rate (TFR)  estimate  # births women expected to have over lifetime  based on fertility rates at each age total fertility rate (TFR)  estimate  # births women expected to have over lifetime  based on fertility rates at each age

zero population growth  TFR where population stops growth  about 2.13 similar to U.S. TFR most of Europe, Japan below 2 zero population growth  TFR where population stops growth  about 2.13 similar to U.S. TFR most of Europe, Japan below 2

post WWII age cohorts baby boom  baby bust, “generation X”  echo boom, “generation Y”  baby boom  baby bust, “generation X”  echo boom, “generation Y” 

general world trend of declining fertility  below ZPG in much of Europe fertility still very high in poorest countries general world trend of declining fertility  below ZPG in much of Europe fertility still very high in poorest countries

An economic approach to fertility preferences production & cost choice comparative statics preferences production & cost choice comparative statics

Children & utility adults receive utility from child services (CS)  quantity # of children  quality resources given to children adults receive utility from child services (CS)  quantity # of children  quality resources given to children

U=U(CS, A) adult utility comes from  child services  adult consumption goods U=U(CS, A) adult utility comes from  child services  adult consumption goods

Production & cost children require  stuff (Z)  time (T) CS = F(T, Z) note: the ratio of stuff/time varies with a child’s age children require  stuff (Z)  time (T) CS = F(T, Z) note: the ratio of stuff/time varies with a child’s age

children are costly  cost of stuff (P Z )  cost of time opportunity cost = lost wages W M, W F C CS =C(W M, W F,P Z ) note that  cost of CS = P of CS children are costly  cost of stuff (P Z )  cost of time opportunity cost = lost wages W M, W F C CS =C(W M, W F,P Z ) note that  cost of CS = P of CS

so increases in prices, wages  increase cost/price of CS how much? depends on ability to substitute so increases in prices, wages  increase cost/price of CS how much? depends on ability to substitute

budget constraint  full income (Y F ) = total possible income = male earnings + female earnings + other sources budget constraint  full income (Y F ) = total possible income = male earnings + female earnings + other sources

Fertility choice depends on  preferences  full income  general prices  cost/price of child services depends on  preferences  full income  general prices  cost/price of child services

Comparative statics changes in  income  prices  wages changes in  income  prices  wages

Change in Income change in income NOT from wages CS are normal goods  demand increases when income increases income effect change in income NOT from wages CS are normal goods  demand increases when income increases income effect

so with increase in non-wage income,  increase demand for CS both quantity and quality (but mostly quality) so with increase in non-wage income,  increase demand for CS both quantity and quality (but mostly quality)

Change in prices price of goods Law of Demand  prices rise, quantity of CS demand goes down price of goods Law of Demand  prices rise, quantity of CS demand goes down

Change in wages change in women’s wages 2 effects: (1)income effect increase demand for CS change in women’s wages 2 effects: (1)income effect increase demand for CS

(2) substitution effect  women are typically biggest time contributor to children  wage is opportunity cost of child rearing  so, as W F rises, so does cost of child rearing  increase in W F causes decrease in CS (2) substitution effect  women are typically biggest time contributor to children  wage is opportunity cost of child rearing  so, as W F rises, so does cost of child rearing  increase in W F causes decrease in CS

note:  increase in W M would likely have a smaller substitution effect than with W F note:  increase in W M would likely have a smaller substitution effect than with W F

total effect of wage change if substitution effect > income effect  CS falls if substitution effect < income effect  CS rises if substitution effect > income effect  CS falls if substitution effect < income effect  CS rises

quantity vs. quality  if quantity is more time-intensive, substitution effect is larger  for quality, larger income effect so if wages rise  quantity could fall but quality could rise quantity vs. quality  if quantity is more time-intensive, substitution effect is larger  for quality, larger income effect so if wages rise  quantity could fall but quality could rise

interaction of quality and quantity suppose quality is same across children as quantity rises  more costly to increase quality at high levels of quality  more costly to have more children suppose quality is same across children as quantity rises  more costly to increase quality at high levels of quality  more costly to have more children

so as wages rise,  decrease quantity of children, so cost of quality falls, so increase the quality  increase quality of children so cost of quantity rises so decrease the quantity so as wages rise,  decrease quantity of children, so cost of quality falls, so increase the quality  increase quality of children so cost of quantity rises so decrease the quantity

Why did fertility fall? change in preferences?  possible, but hard to prove change in women’s wages?  big increase since 1950  decrease fertility if substitution effect dominates change in preferences?  possible, but hard to prove change in women’s wages?  big increase since 1950  decrease fertility if substitution effect dominates

change in men’s wages?  big increase in 20 th century BUT  leveled off since 1970s income effect to decrease CS change in men’s wages?  big increase in 20 th century BUT  leveled off since 1970s income effect to decrease CS

other explanations married women entering the labor force  hard to show cause & effect  decisions about marriage, work, children interact all endogenous married women entering the labor force  hard to show cause & effect  decisions about marriage, work, children interact all endogenous

The Pill  1960s  delay childbearing  delay marriage  increase women’s incentive to pursue education The Pill  1960s  delay childbearing  delay marriage  increase women’s incentive to pursue education