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Chapter 5 The Economics of Fertility

Chapter 5 The Economics of Fertility

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Chapter 5 The Economics of Fertility

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  1. Chapter 5 The Economics of Fertility • Fertility trends • Modeling fertility decisions • Evidence

  2. measuring fertility • birth rate • # births per 1000 population • fertility rate • # births per 1000 women, 15-44

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

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

  5. post WWII age cohorts • baby boom • 1946-64 • baby bust, “generation X” • 1965-1980 • echo boom, “generation Y” • 1980-1995

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

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

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

  9. U=U(CS, A) • adult utility comes from • child services • adult consumption goods

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

  11. children are costly • cost of stuff (PZ) • cost of time • opportunity cost = lost wages • WM, WF • CCS=C(WM, WF,PZ) • note that • cost of CS = P of CS

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

  13. budget constraint • full income (YF) = total possible income = male earnings + female earnings + other sources

  14. Fertility choice • depends on • preferences • full income • general prices • cost/price of child services

  15. Comparative statics • changes in • income • prices • wages

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

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

  18. Change in prices • price of goods • Law of Demand • prices rise, quantity of CS demand goes down

  19. Change in wages • change in women’s wages • 2 effects: • income effect increase demand for CS

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

  21. note: • increase in WM would likely have a smaller substitution effect than with WF

  22. total effect of wage change • if substitution effect > income effect • CS falls • if substitution effect < income effect • CS rises

  23. 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

  24. 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

  25. 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

  26. 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

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

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

  29. The Pill • 1960s • delay childbearing • delay marriage • increase women’s incentive to pursue education