Female Labor Supply and Fertility in Times of Demographic Change: Trends, Determinants and Policy Implications – Evidence From Natural Experiments and a Dynamic Structural Life-Cycle Model
Summary
Fertility and the labor market are closely linked: The presence of children influences mothers’ labor supply and later labor market outcomes. At the same time, changes in net earnings influence women’s propensity to have children. Analyzing these mechanisms is important in light of recent debates on low fertility rates and low levels of maternal employment in Germany and the challenge this implies for the welfare and pensions systems.
The central objective of this research project is to develop a dynamic structural life-cycle model that describes the underlying mechanisms and can therefore be used to evaluate labor market policies encouraging female labor supply and supporting fertility. To achieve this we build on descriptive evidence, quasi-experimental studies, and incorporate insights from recent psychological contributions to inter-temporal decision-making.
We propose to investigate trends and determinants of female labor supply and fertility in Germany over past decades. We break down trends in female labor supply into changes in weekly hours, participation over the year and over the life-cycle. Similarly, we propose to investigate changing fertility patterns over time. We want to assess the reactivity of female labor supply to different policy interventions. Changes in child benefits and child-care costs provide opportunities of evaluating responses to work incentives generated by specific policies. The introduction of these policies as well as differences across regions within Germany can be used to determine the influence of financial incentives for labor supply in a quasi-experimental setting.
Our main focus is on a life-cycle model that uses micro-data on individual characteristics, earnings and savings to explain fertility decisions and labor market outcomes. Building on recent contributions, in particular Adda et al. (2011), we propose a dynamic structural model with human capital accumulation and atrophy, labor market frictions, savings decisions as well as a description of the German tax and transfer system. We are particularly interested in incorporating recent psychological theories of how individuals discount future utility streams when taking decisions. For the identification of time preferences we exploit changes in family policies which affect future utility streams at different points in the life-cycle. We would like to assess to what extent more flexible time preferences may help account for the patterns of labor supply and fertility reactions to labor market incentives that we establish in our partial analyses of policy impacts. A coherent and innovative dynamic structural model, validated by reduced form evidence, will show the implications of new behavioral theories of individuals’ treatment of returns to work occurring at different points in the life-cycle. Importantly, simulations of policy options can help determine the effectiveness and welfare consequences.
Associated Junior Researchers
Sascha Drahs (DIW Berlin)
Luke Haywood, PhD (DIW Berlin)
Ulrich Schneider (DIW Berlin)
Dr. Katharina Wrohlich (DIW Berlin)