Friday, August 12, 2011

More on the Income Elasticity of Having Children

As a follow up to my post about whether children are normal or inferior goods, here is a paper on the topic that uses shocks to husband income to learn about the fertility choices of women.
Although many papers have attempted to reconcile economic theory with the commonly observed negative relationship between income and fertility, little is known about the causal nature of the relationship. This paper explores the causal link by analyzing women's fertility response to the large and permanent income shock generated by a husband's job displacement. I find that the shock reduces total fertility, suggesting that the causal e ffect of income on fertility is positive. A model that incorporates the time cost of children and assortative matching of spouses can simultaneously explain this result and the negative cross-sectional relationship. I also find that the income shock accelerates childbearing. This finding is consistent with life-cycle models of fertility in which a husband's earnings growth provides an incentive to delay having children.
Interesting abstract. I haven't yet read the paper, but the conclusions are just as I expected (possibly, confirmation bias?). As of 2010, the paper is published in the Journal of Human Resources.

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