Why Are Fertility Rates and Female Employment Ratios Positively Correlated Across O.E.C.D. Countries?*

Abstract

We develop a quantitative theory of fertility and labor market participation decisions in order to investigate the role of labor market frictions in generating the observed positive association between fertility and employment among O.E.C.D.countries. We Þnd that unemployment induces females to postpone and space births which, in turn, reduces the total fertility rate. Moreover, differences in female labor outcomes across the U.S. and Spain can account for the low fertility rate in Spain relative to the U.S.. We also Þnd that labor market frictions (low probability of Þnding a job) can generate a positive association between female employment ratios and fertility rates across economies. † We are grateful to Andrés Erosa for many comments and suggestions. We also thank the comments of Pedro Mira, Diego Restuccia, José-Víctor Ríos-Rull, and three anonymous referees. We thank Miana Plesca for invaluable research assistance. We acknowledge the Þnancial support of the BBVA foundation and the Ministerio de Ciencia y Tecnología through grants SEJ2004-03149 (L. Fuster) and SEC2002-4318-C02-01 (J.M. Da Rocha).

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