Fertility and female wages: A new link via house prices

Abstract

The analysis in this paper explains a new link between fertility and female wages that occurs through the e¤ect of house prices. It is well known that higher female wages have an ambiguous e¤ect on fertility: the positive income e¤ect is o¤set by a negative substitution e¤ect due to the higher opportunity cost of the maternal time required for child-rearing. Here it is shown that housing costs add a new dimension to this relationship. If the housing needs of children are a su¢ ciently important cost of child-rearing, then other costs of child rearing such as the opportunity cost of maternal time are rendered relatively less important. Hence the negative substitution e¤ect of higher female wages on fertility is weaker, implying that higher female wages are more likely to boost fertility. This e¤ect is stronger when the housing supply elasticity is high since house prices, and hence the costs of children, are kept in check. The analysis here helps to reconcile empirical observations about fertility, female wages and house prices in a number of countries. For governments concerned about low fertility, policies to increase housing supply elasticity in order to keep house prices in check would be helpful.

Motherhood wage penalty may affect pronatalist policies

“…In other words, higher wages decrease a woman's likelihood of having a first child, but OLENA NIZALOVA | Motherhood wage penalty may affect pronatalist policies increase her likelihood of having a second and third child. Another recent theoretical study shows that the income effect is likely to dominate when housing comprises a sufficiently significant cost of child rearing [13]. For instance, if having more children implies incurring higher costs for additional housing, and if housing is in limited supply and/or very expensive, then other costs of child rearing, such as the opportunity cost of the mother's time, become less important.…”

Three essays on fertility

“…Ioannides (1987) and Ioannides and Kan (1996) …nd that the size of family, housing price and wealth are key decision-making factors that lead to housing tenure choice and mobility. Among those who have linked housing price and fertility together, Day and Guest (2016) examine the e¤ect of female wages on fertility by incorporating housing cost into the child rearing cost function. Hui et al (2016) examine the impact of fertility rate on housing price by allowing housing wealth to be bequeathed to the next generation.…”