THE ROLE OF LABOR AND MARRIAGE MARKETS,PREFERENCE HETEROGENEITY,AND THE WELFARE SYSTEM IN THE LIFE CYCLE DECISIONS OF BLACK,HISPANIC, AND WHITE WOMEN*

Using data from the NLSY79, we structurally estimate a dynamic model of the life cycle decisions of young women. The women make sequential joint decisions about school attendance, work, marriage, fertility, and welfare participation. We use the model to perform counterfactual simulations designed to shed light on three questions: (1) How much of observed minority–majority differences in behavior can be attributed to differences in labor market opportunities, marriage market opportunities, and preference heterogeneity? (2) How does the welfare system interact with these factors to augment those differences? (3) How can new cohorts that grow up under the new welfare system (Temporary Aid for Needy Families) be expected to behave compared to older cohorts?     

UNCERTAIN INFANT MORTALITY,LEARNING, AND LIFE‐CYCLE FERTILITY*

This article examines the links between infant mortality and fertility in an environment with unobserved heterogeneity in infant mortality risk across mothers. In such an environment, replacement behavior (i.e., the fertility response to an experienced child death) might be influenced by mothers' learning about a family‐specific component of infant mortality risk. I explicitly introduce learning by mothers in a dynamic stochastic model of life‐cycle marital fertility, and I estimate the model's structural parameters using Malaysian panel data. The framework is used to estimate replacement rates and to correct for birth selectivity in the estimation of the relationship between infant mortality risk and “health inputs.”     

The impact of personal bankruptcy law on entrepreneurship

I study the two competing effects of limited personal liability on entrepreneurship in a life‐cycle model: an insurance effect through debt relief in the event of business failure and a borrowing cost effect where the borrowing cost rises with default premiums. I first calibrate the model to the US economy by taking a simplified version of the US Chapter 7 bankruptcy code and then consider the effects of alternative regimes. I find that personal bankruptcy law affects entrepreneurship primarily by altering the decisions of agents with moderate entrepreneurial ability through the insurance effect rather than through the borrowing cost effect.     

AN ESTIMABLE DYNAMIC GENERAL EQUILIBRIUM MODEL OF WORK,SCHOOLING, AND OCCUPATIONAL CHOICE*

This article develops and estimates a dynamic general equilibrium overlapping‐generations model of career decisions. The model is fit to data on life cycle employment, schooling, and occupation decisions and on life cycle labor earnings, within and between cohorts observed in the United States between 1968 and 1993. Based on the estimates of the model, the impact of cohort size on skill prices and the general equilibrium effect of a tuition subsidy are assessed.     

A quantitative theory of the gender gap in wages

This paper measures how much of the gender wage gap over the life cycle is due to the fact that working hours are lower for women than for men. We build a quantitative theory of fertility, labor supply, and human capital accumulation decisions to measure gender differences in human capital investments over the life cycle. We assume that there are no gender differences in the human capital technology and calibrate this technology using wage–age profiles of men. The calibration of females assumes that children involves a forced reduction in hours of work that falls on females rather than on males and that there is an exogenous gender gap in hours of work. We find that our theory accounts for all of the increase in the gender wage gap over the life cycle in the NLSY79 data. The impact of children on the labor supply of females accounts for 56% and 45% of the increase in the gender wage gap over the life cycle among non-college and college females, while the rest is due to the exogenous gender differences in hours of work.     

THE EFFECT OF HUSBAND'S JOB DISPLACEMENT ON THE TIMING AND SPACING OF BIRTHS IN THE UNITED STATES

I use husband's job displacement as an exogenous shock to identify the effect of income on the timing and spacing of births. Gradual adjustment of fertility to income shock is considered in life‐cycle model with uncertainty. Flexible hazard model, estimated jointly for the first three births, allows household's fertility to be affected not only in the period of displacement but also before and after. General displacements and layoffs have negative log‐run effect on the timing and spacing of only the first and the third births. The effect persists with nonparametric controls for woman‐ and transition‐specific heterogeneity, and after robustness checks. (JEL J13, J63, C41)     

Life expectancy and economic development: Evidence from microdata

This study examines the effect of life expectancy on fertility, education, and labor force participation. Using birth and sibling histories from the Demographic Health Surveys conducted in sub‐Saharan Africa, I construct a time series of age‐specific birth rates and mortality rates at the country‐region level. I use these data to test the implications of a general equilibrium model linking life expectancy to fertility, human capital, and labor supply. My results suggest that increases in life expectancy reduce fertility, increase education, and increase labor force participation. Overall, my empirical results suggest that in sub‐Saharan Africa, increases in life expectancy will have a positive impact on growth through fertility, education, and labor supply but that the effect will be small. My results also rule out the possibility that recent shocks to adult mortality in high HIV prevalence countries will reduce fertility, increase labor productivity, and lead to faster growth.     

THE IMPACT OF BODY WEIGHT ON OCCUPATIONAL MOBILITY AND CAREER DEVELOPMENT

This article examines the relationship between individuals' weight and employment decisions over the life cycle. I estimate a dynamic stochastic model of individuals' annual choices of occupation, hours worked, and schooling. Evidence suggests that heavier individuals face higher switching costs when transitioning into white‐collar occupations, earn lower returns to experience in white‐collar occupations, and earn lower wages in socially intensive jobs. I simulate a hypothetical antidiscrimination policy treating obese workers as a protected class. Although such a policy would reduce gaps in occupational attainment, it would have little effect on the observed divergence in wages between obese and nonobese workers.     

Longevity,Fertility and Economic Growth: Do Environmental Factors Matter?

Our study examines the effect of environmental factors on the economic decisions regarding fertility. We incorporate health‐damaging pollution into a three period overlapping generations model in which life expectancy, fertility and economic growth are all endogenous. We show that environmental factors can cause significant changes to the economy's demographics. In particular, the entrepreneurial choice of less polluting production processes, induced by a tax on emissions, can at some point in time lead to such changes as higher longevity and lower fertility rates. Thus, we provide a novel explanation on the positive relation between fertility rates and pollution. According to this, the causality on this relation may also work from the latter to the former. Furthermore, our model can account for the empirically observed N‐shaped correlation between pollution and income per capita.     

The Effect of Life Expectancy on Fertility,Saving, Schooling and Economic Growth: Theory and Evidence*

We construct a simple growth model where agents with uncertain survival choose schooling time, life‐cycle consumption and the number of children. We show that rising longevity reduces fertility but raises saving, schooling time and the growth rate at a diminishing rate. Cross‐section analyses using data from 76 countries support these propositions: life expectancy has a significant positive effect on the saving rate, secondary school enrollment and growth but a significant negative effect on fertility. Through sensitivity analyses, the effect on the saving rate is inconclusive, while the effects on the other variables are robust and consistent. These estimated effects are decreasing in life expectancy.     

Having It All? Employment,Earnings, and Children*

We study the effect of family policies on female employment, fertility, and the gender wage gap. We develop a life‐cycle model of heterogeneous households featuring endogenous labor supply, human capital accumulation, fertility, and home production. Our results suggest that human capital accumulation is important in accounting for the widening of the gender wage gap following children. We find that, in aggregate, childcare subsidies promote maternal employment and fertility, although the effects are heterogeneous across couples. A subsidy on home goods increases female employment, but primarily later in life. Thus, it does not dampen the widening of the gender gap.     

Entrepreneurial Skills,Technological Progress,and Firm Growth*

Using cross-country establishment-level data, I show that employment profiles over a firm's life cycle are flatter in fast-growing economies than in slow-growing economies. The difference in average employment over the firm's life cycle increases with plant age. I propose a frictionless overlapping-generations model with exogenous technological progress. Firm productivity also depends on entrepreneurs’ skills. Entrepreneurs can increase their skills over their life cycle, but the growth of the vintage component of younger cohorts’ skills is higher in fast-growing economies than in slow-growing economies. This model is able to explain most of the differences observed in the sample between fast-growing and slow-growing economies.     

The Economics of Ageing—What do you Face?

The economics of ageing is the study of economic decision‐making by individuals and government aimed at fostering well‐being in old age. These decisions include preparing for old age and dealing with the risks of old age. The risks are substantial. Using the life‐cycle model, this article considers the risks for well‐being that people face in retirement and the role of government and private insurance in meeting those risks. The perspective of the life‐cycle model is also used to consider the gender gap in wealth on retirement.     

Fertility and mortality changes in an overlapping-generations model with realistic demography

Many overlapping-generations models assume only working and retirement stages and are “not capable of representing the most basic feature of the human economic life cycle: that it begins and ends with periods of dependency, separated by a long intermediate period of consuming less than is produced” (Bommier and Lee, 2003). To examine the economic consequences of fertility and mortality changes in a common framework, we incorporate realistic demographic features into a continuous-time overlapping-generations model with childhood, adulthood and retirement stages. Using parameter values appropriate for industrial countries (such as the USA), we find that a fertility increase and a mortality decline, while both causing a rise in the population growth rate, have opposite effects on capital accumulation. We also consider simultaneous fertility and mortality changes, and find that the effect on capital accumulation of a mortality change dominates that of a fertility change.     

The consumption tax in the presence of altruistic cash and human capital bequests with endogenous fertility decisions

We provide an analysis of the consumption tax policy in the presence of cash bequests, human capital investments in children, and endogenous fertility decisions. It is shown that the consumption tax is no longer neutral if the tax rate is constant over the taxpayer's life cycle, labor supply is exogenous, and the parent expects the offspring to pay the same tax rate, if the number of children is chosen optimally by the parent. Neutrality breaks down because the shadow prices of both bequests and fertility are interlinked; it is more expensive to produce a child the larger either bequest is and it is more expensive to make a bequest of either type to each child the larger the number of children produced. Several examples are provided where imposing the consumption tax induces an increase in the number of children produced and a decrease in net capital formation.     

Economic growth, labor market and demographic patterns

This study addresses the dynamic interaction between income growth, patterns of demographic variables, and characteristics of the labor market. We attempt to provide an endogenous explanation for the origin and nature of long-run sustained oscillations in the population and in economic variables. First, we develop an economic growth model containing unemployment. The resulting dynamics reveal that the emergence of irregular sustained oscillations is related to the lack of sensitivity in wage growth to changes in the employment rate. Next, labor force growth is endogenized in the basic model through micro-founded fertility choices of individuals. By introducing the endogenous fertility rate into the basic model, we generate a demographic transition. Next, consistent with Malthusian cycle literature, the inevitable time lag between individual reproductive decisions and subsequent market needs, in conjunction with a highly specialized labor force, appear to be the primary source of such long-run oscillations. Finally, the model predicts that raising the age of entry into the labor force increases economic growth.     

Social Mobility: The Barro–Becker Children Meet the Laitner–Loury Dynasties

I compare the predictions of two types of dynastic models for the persistence of wealth across generations: models that focus on uninsurable risk and intergenerational consumption smoothing but abstract from the fertility decision, such as Loury and Laitner, and models without risk that focus on the fertility decision, such as Becker and Barro. I show that when both uninsurable risk and fertility decisions are present, a striking result obtains: wealthier parents have more children, but the transfer to each child is independent of wealth. Since this result is counterfactual, I also discuss extensions that can resurrect persistence.Journal of Economic LiteratureClassification Numbers: C61, D31, D1, J13     

The effect of the timing and spacing of births on the level of labor market involvement of married women

We analyze the effect of the timing and spacing of births on the labor supply of married women in a framework that accounts for the endogeneity of the labor market and fertility decisions, for the heterogeneity of the effects of children on labor supply and their correlation with the fertility decisions, and for the correlation of sequential labor market decisions. Delaying the first birth leads to higher pre-natal levels of labor market involvement and reduces the negative effect of the first child on labor supply. The effect of the second child increases with the spacing of the two births as women, returning to work after the first birth, finance child care time increasingly through reductions in market time. Individual heterogeneity is considerable; women with lower propensity for children have the first birth later in life and space subsequent births more closely together, work more before the birth of the first child, but face larger effects of children on their labor supply.     

A general equilibrium analysis of parental leave policies

Despite mandatory parental leave policies being a prevalent feature of labor markets in developed countries, their aggregate effects in the economy are not well understood. To assess their quantitative impact, we develop a general equilibrium model of fertility and labor market decisions that builds on the labor matching framework of Mortensen and Pissarides (1994). We find that females gain substantially with generous policies but this benefit occurs at the expense of a reduction in the welfare of males. Leave policies have important effects on fertility, leave taking decisions, and employment. These effects are mainly driven by how the policy affects bargaining – young females anticipate future states with higher threat points induced by the policy. Because the realization of these states depends on the decisions of females to give birth and take a leave, leave policies effectively subsidize fertility and leave taking. We also find that generous paid parental leaves can be an effective tool to encourage mothers to spend time with their children after giving birth.     

Jointly determined saving and fertility behaviour: theory,and estimates for Germany,Italy, UK and USA

This study uses new theories of capital accumulation and fertility in a comparative framework to test predictions with time-series data for Germany, Italy, the UK, and the US. The exogenous-fertility model is based on models of Barro and Becker. The endogenous-fertility models are based on models of Veall and Nishimura and Zhang. It is assumed that life cycle periods are youth, middle age, and old age. Several theoretical frameworks are tested with endogenous and exogenous fertility and altruism and nonaltruism. Data are obtained during 1950-90. Dependent variables are the total lifetime fertility rate and real per capita household savings. Explanatory variables include social security, the real social security deficit per capita, the real rate of interest, the real per capita disposable income, the average male real wage rate, the average female real wage rate, and the real child benefit rate. The explanatory variables are individually graphed to show differences by country over time. Findings suggest that fertility is endogenous in a nonaltruistic model. The only model not rejected by the data was the model in which fertility and intergenerational transfers were explained by nonaltruistic concerns. Fertility was positively affected by the male wage rate in all countries. Fertility was negatively affected by the female wage rate in all countries. Disposable income was insignificant in the UK and Germany and positive and significant in Italy and the US. The interest rate was significant in only 1 model. Child benefits had a positive and significant effect on fertility in the UK. In savings models, disposable income was significant and positive, and child benefits and wage rates were insignificant. Social security coverage had a negative effect on fertility and a positive effect on savings, except in Germany. Findings indicate that saving and fertility are jointly determined.