Social externalities, endogenous childcare costs, and fertility choice

Abstract

We reconcile the steep decline in fertility rates during the demographic transition with the fertility rebound observed in recent decades in high-income countries. The micro-foundations of the optimal choice of agents in our expanded model include endogenous childcare costs and social externalities stemming from human capital, consumption, and fertility norms. Combining these factors with the quality-quantity trade-off in fertility choice explains the inverse J-shaped relationship between fertility and economic development. Moreover, the simulated average fertility rates based on the model are reasonably consistent with the observed pattern of the evolution of the cohort fertility rates in high-income countries. Sensitivity analyses show that the model fits historical cohort fertility rates only when it includes the effects of social externalities and endogenous childcare costs.

A New Era in the Not So New Economics of Fertility and Women's Time: An Introduction

“…The child quantity/quality trade‐off features in OLG models explaining fertility decline during the demographic transition in the initial stages of economic development (Galor and Weil 2000) and reversal of fertility decline at advanced levels of development (Dzhumashev and Tursunalieva 2023; Futagami and Konishi 2019; Hirazawa and Yakita 2017). The rising opportunity cost of women's time explains fertility decline in the OLG model of Galor and Weil (1996), which has been extended to examine the role of childcare and family policy in the reversal of fertility decline (Apps and Rees 2004; Day 2004; Martinez and Iza 2004; Yakita 2018).…”

Child care costs, household liquidity constraints, and gender inequality

“…Dzhumashev and Tursunalieva (2023) provide a model with endogenous fertility and child care costs to explain the decline in fertility rates during the demographic transition and the fertility rebound observed in recent decades in high-income countries.…”