Are Responses to Unemployment Homogenous Across Social Strata?

EBENEZER SCROOGE, from Charles Dickens’ “A Christmas Carol” famously suggests that the poor could “decrease the surplus population” by dying rather than entering the workhouse. Since then, the dynamics of the world economy changed and industrialized countries’ fertility dropped by more than half between the mid-nineteenth and the early twentieth century.

The growing importance of labor market conditions for fertility decisions led many researchers to explore this particular issue. A considerably large body of literature shows that negative labor market outlook causes a decrease in birth rates, while other studies find either positive or no effect of labor market conditions on fertility.[i] My study contributes to this debate in the literature by exploring the impact of local unemployment on fertility, and how this effect varies across demographic subgroups. In particular, it investigates how birth rates are affected by gender- and age-specific unemployment at ceremonial county level in England.

The neoclassic approach of fertility has sought to address the issue of timing of fertility and its determinants at both the aggregate and individual level. In this context, two different models were built, mainly based on the work of Becker (1960), Lewis and Becker (1973), and Willis (1973). The former encompasses static models of fertility behavior (Easterlin & Crimmins, 1985; Montgomery, 1987) while the latter involves dynamic models of fertility (Newman, 1988; Barro & Becker, 1989). As the static models do not incorporate the timing of fertility, and rely on the time allocation and demand for children along with quality and quantity approach, I decided to build my research on the dynamic approach. This framework allows individuals to take price and income changes into account before having a child so as to enable childbearing at different ages over the life cycle. In my paper, I concentrate on the following research question:

Does the effect of unemployment on fertility differ by age and gender?

I argue that various contradictions in this area of research stem from disregarding gender- and age-specific differences in fertility behavior. Replacing aggregate level unemployment with any kind of gender-specific unemployment and overlooking the socio-economic differences between age groups cause an identification problem in finding individual effects of female and male unemployment. Therefore, the present study deals with this issue, via detecting how gender- and age-specific unemployment affect birth rates at ceremonial county level, in England, and ultimately presenting new evidence of counter-cyclical fertility (i.e. an increase in unemployment leads to an increase in births).

Figure 1. Mean Birth Rates, 1995-2010, and Mean Unemployment Rates, 1994-2009, Across Ceremonial Counties in England

chart1Figure 1 illustrates the patterns in mean unemployment rates and birth rates in ceremonial counties between 1994 and 2011. Northumberland, Cheshire, and Dorset have the lowest average fertility rates in the country, while highly populated areas, such as the South East region and Greater London experience the highest fertility. Merseyside, Tyne and, Wear and West Midlands are the areas with highest unemployment rate over the sample period.

Figure 2 shows trends in birth rates and unemployment rates by age group at the national level where birth rates are calculated as births per thousand females aged 16-44 (based on birth statistics from the Office for National Statistics (ONS)), population estimates are from the Annual Population Survey (APS) and data on  unemployment rates come from the Labor Force Survey (LFS). Birth rates follow a decreasing trend among the 16-24 year-olds after reaching a peak of 53.2 births per 1000 women in 1995. Within the 25-34 age group, birth rates rebound after 2000 and reached its highest level over the sample period (112.2 per 1000 women) in 2009. Moreover, the oldest age group (35-44) has experienced a steady rise in their birth rate; from 21.3 to 35 per 1000 women, between 1995 and 2011.

Mean unemployment rates differ notably for each age group but follow similar trends. After reaching its lowest point between 2002 and 2005, unemployment rates increased for all age groups and peaked with the shocks of the financial crisis in 2008. Additionally, birth rates appear to follow a counter-cyclical pattern over the analyzed time interval.

Figure 2. Age-Specific Unemployment Rates and Age-Specific Fertility Rates in England, 1994-2010.

chart2

In order to analyze the effects of age- and gender-specific unemployment on completed birth rates, fixed-effect specification is employed that also incorporates demographic controls along with county and age group specific linear time trends. Unemployment rates are used as a proxy for the overall state of the economy and they capture the individual-level effects of losing one’s job on fertility along with changes in economic outlook. It is necessary to note that unemployment rates are likely to be correlated with the changes in other unobserved variables that affect birth rates. Additionally, there might be a direct reverse causality bias and measurement error issue. With the intention of addressing such potential concerns, an instrumental variables approach is employed based on the work of Bartik (1991), and Blanchard and Katz (1992).

The results suggest that a one percentage point increase in unemployment rate is associated with a one percent increase in birth rates per thousand births for females aged 16-44. However, the effects of age- and gender-specific unemployment are remarkably different. Compared to the youngest age group, the same amount of increase in unemployment rate is associated with a 0.05 percent increase in birth rates among the 25-34 year-olds and with a 0.06 percent decrease among those aged between 35 and 44. Evidently, these correlations are consistent with most of the life course literature which studies the role of economic uncertainties in fertility dynamics and finds that youth unemployment leads to fertility postponement. Lastly, after controlling for male unemployment, females aged between 25 and 34 and unemployed, prefer to have a child. This drives the birth rate significantly upwards to an increase of 1.8 percent as unemployment rate increases one percentage point. The oldest female age group has also experienced an increase in birth rates, however the magnitude of this effect is substantially smaller. Additionally, male unemployment has a positive and insignificant impact on births within the sample period. As female labour market participation has increased over time and families are transformed from single earner to dual earner families in England, it is reasonable to think that such a situation (i.e. staying out of workforce) might present a source of criticism in communities, and therefore focusing on parenthood can raise social esteem and self-perception (Tolke & Diewald, 2003). Thus, the loss of social status due to unemployment might be compensated for by shifting the activity to the family domain by having a child (Murphy, 1989).

To sum up, drawing on the Labor Force Survey, the Annual Population Survey, and birth statistics from the ONS, a comparison of age groups reveal that unemployment is more likely to affect the fertility of younger, rather than older women, in the sense that the former are more able to postpone their fertility until economic conditions improve than older women. It has also been argued that more educated women might be more eager to have a child due to low opportunity cost during an economic bust, as they could focus on the labor market after giving birth. Additionally, evidence from this analysis suggests the existence of strong variation across demographic strata and shows that men and women in different age groups react differently to local unemployment shocks.

[i] Adsera (2004), Adsera (2005), Ahn & Mira (2002), Brewster & Rindfuss (2000), Esping-Andersen (1999), Hoem (2000), Kravdal (2002), Kreyenfeld (2009) , Tölke and Diewald, (2002).

References:

Barro, R. J., and G. S. Becker (1989), “Fertility choice in a model of economic growth.” Econometrica: Journal of the Econometric Society: 481-501.

Bartik, T. J. (1991), “Who benefits from state and local economic development policies?” W. E. Upjohn Institute for Employment Research, Kalamazoo, Michigan.

Becker, G. (1960), “An economic analysis of fertility”. In G. S. Becker, J. Duesenberry & B. Okun, Demographic and economic change in developed countries, NBER conference series 11 (pp. 209–231). Princeton: Princeton University Press.

Becker, G. S. and H. G. Lewis (1973), “On the interaction between the quantity and quality of children”. Journal of Political Economy, 81, 279.288.

Blanchard, O. J. and L. F. Katz (1992), “Regional evolutions”. Brookings Papers on Economic Activity, 23, 1–76.

Easterlin, R. A. and E. M. Crimmins (1985), “The Fertility Revolution: A Supply-Demand Analysis”. Chicago: University of Chicago Press

Montgomery, M. R. (1987), “A new look at the Easterlin “synthesis” framework.” Demography 24.4: 481-496.

Murphy, M. (1989), “Unemployment among Young People: Social and Psychological Causes and Consequences.” Youth and Policy  29:11-19.

Newman, J. (1988), “A stochastic dynamic model of fertility”, Research in Population Economics, 6: 4168.

Tölke, A. and M. Diewald, (2003), “Insecurities in employment and occupational careers and their impact on the transition to fatherhood in Western Germany,” Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 9(3), pages 41-68.

Willis, R. (1973), “A new approach to the economic theory of fertility behavior”, Journal of Political Economy 81: S14-S64.


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Cevat Giray Aksoy

About Cevat Giray Aksoy

Cevat Giray is researcher and PhD. candidate at University of London, Royal Holloway. Before joining RHUL, he completed his MSc in Economics at State University of New York, and worked as economic development specialist for US government. He is currently teaching at University College London and RHUL.

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