The dynamics of fertility and growth: Baby boom, bust and bounce-back

This paper examines the dynamic interplay between economic growth and fertility as a developed economy moves through two distinct phases: women at home and raising children full time; women entering the work force and raising children part time. Women's relative wages rise with economic growth, as per Galor and Weil (1996). Higher wages make children more affordable. On the other hand, children are more costly when maternal time, used in child rearing, could be supplied to the labor market. I extend Galor and Weil (1996) by introducing goods and services as a child rearing input. A Constant Elasticity of Substitution (CES) production function for child rearing allows for varying degrees of substitutability between goods and time. The existence of an alternative input to maternal time generates a baby boom-bust cycle: fertility rises in the first phase and falls in the second. Whilst fertility declines unambiguously at the beginning of the second phase, as women enter the labor force, it may bounce-back before reaching a steady state as income effects start to dominate.