Fertility and economic growth: The role of workforce skill composition and child care prices

This paper presents an overlapping generations model that incorporates choice of occupation (education), fertility, how to rear children, and a market for child care. The dynamic interplay between economic growth and fertility is examined as an economy moves through two phases distinguished by the skill composition of the workforce. In the initial phase, the economy comprises skilled and unskilled workers. In the second phase, all workers are skilled. Skilled workers are shown to have fewer children than less educated workers. Aggregate fertility initially declines as the fraction of skilled workers rises with economic growth, and then may recover as the fertility of a skilled workforce rises with skilled wages, for given child care prices. However, in equilibrium, child care prices rise proportionally to skilled wages when child care is produced with constant returns to skilled labour. Results indicate that whether or not the rise in fertility witnessed in high-income countries will continue depends on each country's structure of child care.