Chapter 5 Chapter 5 The Economics of FertilityThe Economics of FertilityChapter 5 Chapter 5 The Economics of FertilityThe Economics of Fertility

• Fertility trends

• Modeling fertility decisions

• Evidence

• Fertility trends

• Modeling fertility decisions

• Evidence

measuring fertilitymeasuring fertilitymeasuring fertilitymeasuring fertility

• birth rate # births per 1000 population

• fertility rate # births per 1000 women, 15-44

• 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

Birth rate (per 1000 population)

101520

253035

1910 1930 1950 1970 1990

Total Fertility Rate

0

12

34

5

1900 1920 1940 1960 1980 2000

post WWII age cohortspost WWII age cohortspost WWII age cohortspost WWII age cohorts

• baby boom 1946-64

• baby bust, “generation X” 1965-1980

• echo boom, “generation Y” 1980-1995

• baby boom 1946-64

• baby bust, “generation X” 1965-1980

• echo boom, “generation Y” 1980-1995

Women Age 40-44, by # of children, 1976

4+35%

110%

none10%

222%

323%

Women Age 40-44, by # of children, 2000 4+

11%3

19%

116%

none19%

235%

0

20

40

60

1980 1985 1990 1995 2000

Births Per 1000 Women, Age 35+

6.986.15

4.52

2.912.07

1.61 1.38

01234567

Somalia

Saudi ArabiaIraq

India

U.S.

CanadaJapan

TFR of selected countries, 2003

• 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 fertilityAn economic approach to fertilityAn economic approach to fertilityAn economic approach to fertility

• preferences

• production & cost

• choice

• comparative statics

• preferences

• production & cost

• choice

• comparative statics

Children & utilityChildren & utilityChildren & utilityChildren & 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 & costProduction & costProduction & costProduction & 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 (PZ)

cost of time• opportunity cost = lost wages

•WM, WF

• CCS=C(WM, WF,PZ)

• note that cost of CS = P of CS

• 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

• 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 (YF)

= total possible income

= male earnings + female earnings + other sources

• budget constraint full income (YF)

= total possible income

= male earnings + female earnings + other sources

Fertility choiceFertility choiceFertility choiceFertility 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 staticsComparative staticsComparative staticsComparative statics

• changes in income prices wages

• changes in income prices wages

Change in IncomeChange in IncomeChange in IncomeChange 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 pricesChange in pricesChange in pricesChange 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 wagesChange in wagesChange in wagesChange 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 WF rises, so does cost of

child rearing increase in WF causes decrease

in CS

(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

• note: increase in WM would likely have a

smaller substitution effect than with WF

• note: increase in WM would likely have a

smaller substitution effect than with WF

total effect of wage changetotal effect of wage changetotal effect of wage changetotal 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 quantityinteraction of quality and quantityinteraction of quality and quantityinteraction 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?Why did fertility fall?Why did fertility fall?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 20th century BUT leveled off since 1970s• income effect to decrease CS

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

other explanationsother explanationsother explanationsother 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