Life-Cycle Fertility and Human Capital Accumulation

This paper develops and implements a semiparametric estimator for investigating, with panel data, the importance of human capital accumulation, non-separable preferences of females and child care costs on females life-cycle fertility and labor supply behaviors. It presents a model in which the agents' expectations are correlated with their future choices and provides a set of conditions under which statistical inferences are possible from a short panel. Under the assumption that observed allocations are Pareto optimal or that the utility function is quasi linear, a dynamic model of female labor supply, labor force participation and fertility decisions is estimated. In that model, experience on the job raises future wages, time spent nurturing children affects utility, while time spent off the job in the past directly affects current utility (or, indirectly through productivity in the non-market sector). This paper then uses the estimates from the model to conduct different policy simulations which shows that human capital accumulation is the most important determinant of life-cycle fertility behavior. This result is due to the nonlinearity in returns to experience and the fraction of time require for nurturing a new birth. These two effects works in opposite directions, significantly increasing the cost of having a child. The cost of having a child now is not only the foregone wages but more importantly the cost of breaking the career path of the woman when she leaves the labor force or reducing her hours worked in order to have a child. In our simulations many proposed public policies aim at increasing the fertility rate(e.g. maternity leave or free day care services) have little or no effect on the fertility rate and only result in changes in the labor-leisure trade-off. However, when we were able to compensated women for the foregone wage trajectory the fertility rate significantly increases.