Labor Market Institutions and Fertility

• BSE Working Paper: 110769 | November 21
• Keywords: fertility , Labor market institutions , temporary contracts , split-shift schedules , childcare subsidies
• JEL codes: E24, J13, J21, J22
• fertility
• Labor market institutions
• temporary contracts
• split-shift schedules
• childcare subsidies

The total fertility rate is as low as 1.3 in some high-income countries, and factors behind such low levels are not well understood. We show that uncertainty created by dual labor markets, the coexistence of temporary and open-ended contracts, and the inflexibility of work schedules are crucial to understanding low fertility. We focus on college-educated women and document that temporary contracts are associated with a lower probability of first birth using rich administrative data from the Spanish Social Security records. With Time Use data, we also show that women with children are less likely to work in jobs with split-shift schedules, with a long break in the middle of the day. Split-shift schedules present a concrete example of inflexible work arrangements and fixed time cost of work. We then build a life-cycle model in which married women decide whether to work or not, how many children to have, and when to have them. Reforms that eliminate duality or split-shift schedules increase the completed fertility of college-educated from 1.54 to around 1.7. These reforms also increase women’s labor force participation and eliminate the employment gap between mothers and non- mothers. Reforming these labor market institutions and providing childcare subsidies increase fertility to 1.86.