The Emergence of Procyclical Fertility: The Role of Gender Differences in Employment Risk

It is natural to think that families will not have kids when the economy is in a recession, concluding that the fertility is procyclical which means that the fertility increases in economic booms and decreases in busts. In a recession, families typically have less income and they cancel (or postpone) fertility decision because they cannot afford to have more kids.

Procyclicality of fertility is well documented for the US economy since mid-70s. However, the story is not that simple and fertility was actually countercyclical during 60’s as pointed out in previous studies, that is families increase their fertility especially when the economy is in a recession. The argument behind countercyclical fertility is the time cost argument; when the economy is in a boom, people earn higher wages, which increases the opportunity cost of having a child because children require taking time off from the work. On the other hand, a spell of unemployment could be seen as a perfect opportunity to have a child as the opportunity cost is minimized.

In our research, we argue that analyzing labor market with a gender perspective is crucial to explain the cyclical behavior of fertility. We document that men are mostly working in highly procyclical industries such as construction and manufacturing which are heavily hit by the recession, whereas women mostly work in countercyclical industries such as health care, education and government which are not affected or even improve in recessions. In a typical family, it is the man who loses the job and the woman becomes the breadwinner when the recession hits. As the breadwinner of the family, women cannot afford to take time off to have a child. This channel is crucial in understanding why fertility is procyclical.

There are two parts in our analysis. First is the empirical part where we document the cyclical behavior of different industries, calculate the cyclicality of fertility for different time intervals since 60’s and compare US states in terms of “how relevant the breadwinner woman story” is and “how procyclical fertility” is. Second and the main part of our analysis is to build a general equilibrium overlapping generations model with endogenous fertility and human capital investment, in which families decide how many kids to have and how much to invest in their education depending on the income shocks that they face. This framework allows us to understand how well gender differences in industry employment can account for cyclical behavior of fertility and consider counterfactual scenarios such as: ” what would fertility be if men were nurses and women were construction workers?”

In our empirical analysis, we show that volatility of male employment is at least 50% higher than female employment and women’s income share in the family is higher in a recession. We show that in US states where the gender employment gap is higher, which highly supports “breadwinner woman story”, fertility is more procyclical. Through the lenses of our model, we show that if we make men nurses and women construction workers, fertility would be countercyclical at the expense of lower human capital. In such a world, women will benefit from a recession to have a child when their opportunity cost is the lowest, however they will have less resources to invest in their education.

When the female income share is low, hence women contribute less to the family budget, women breadwinner story is not relevant hence they have kids when the recession hits. This reflects the US in 60’s. However, overtime female income share in the family increased. As women work in more stable industries, they became breadwinners in recessions which tilted fertility towards being procyclical.

Women incur short term and long-term child penalties, that is their earnings decrease substantially around 30% right after childbirth and this decrease is permanent. Women consider the career costs before having a child. In the current labor market structure in which women work in stable jobs and men work in volatile jobs, women know that if the recession hits, they will be the breadwinner in the family, hence if they have a child now, they will not be able to support their family in case of a recession. As a result, they have less children overall and invest more in their education.

In today’s world, families not only decide on how many children to have, but also decide how much resources to spend for them. Then, families face a tradeoff between having another child or spending more on existing children, the literature calls this quality-quantity trade-off. Our findings indicate the importance of macroeconomic conditions in determining fertility dynamics in a world where women bear the time cost of children, families face the quality-quantity trade-off. It is important to understand why the fertility behave the way it does and what are the consequences of this behavior in terms of human capital investment in order to address with effective policy tools.

In most developed countries fertility rates are low and families try to invest more and more in human capital to overcome the obstacles created by inequality. We highlight an important channel through which families prefer having less children and invest more in their education, also are affected substantially from economic downturns in terms of their fertility decisions.

Our research question became even more important due to the Covid-19 pandemic. As opposed to previous recessions, Covid-19 recession is mostly a female recession where job losses are more severe among women than men. What is more striking is that, time cost of children increased substantially with daycare and school closures. Our framework is very relevant to analyze fertility in a pandemic situation, and our preliminary findings predict a collapse in fertility. This collapse mostly comes from the increase in time cost of children in the short run, but also potentially higher long-term career costs arising from being away from the labor market to take care of children as well as substantial income losses.