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Fertility and the business cycle: the European case

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Abstract

This paper analyzes the role of the business cycle in fertility, using data from 30 European countries for the period 1993 to 2013. We find that the unemployment rate, used as a proxy for the evolution of the business cycle, negatively affects the fertility rate, although the effect of business cycle variations is quite moderate. Since, with the available data for the period, it is not possible to check whether recent changes in the business cycle have had a permanent effect on the fertility behavior of women, our findings address only short-term results. These are maintained when we control for the welfare generosity of the European countries, in addition to country-level socio-economic and institutional factors, along with unobservable characteristics that can vary by country and/or over time. Only under two scenarios, very flexible labor markets and high levels of gender equality, is it possible to predict a potential counter-cyclical response of fertility. Supplementary analysis, developed to explore the impact of the business cycle on the entire distribution of the fertility rate, indicates that the effect of unemployment is strong in the bottom quantiles, corresponding to low fertility rates, indicating that economic uncertainty discourages fertility decisions even more strongly in those societies where having a child is costly.

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Notes

  1. “Europe’s other crisis”: Recession is bringing Europe’s brief fertility rally to a shuddering halt, The Economist, Jun 30th 2012, http://www.economist.com/node/21557774

  2. “Highest fertility rates in Europe still below ‘replenishment level’”, Financial Times, March 28th, https://www.ft.com/content/d54e4fe8-3269-11e8-b5bf-23cb17fd1498

  3. The GFR is calculated as the number of live births within a country in a year, divided by the number of women aged 15 to 44 residing in the country in the same year, and multiplied by 1000.

  4. The TFR is defined as the average number of children born per woman over a lifetime given current age-specific fertility rates and assuming no female mortality during the reproductive years.

  5. Pailhé and Solaz (2012) have studied the tempo and quantum effects of employment uncertainty, but not those of business cycle variations, on fertility decisions in France. They show that male unemployment tends to delay parenthood but has only a weak effect on the completed fertility rate.

  6. For a discussion on the potential effects that a postponement of fertility decisions may have on the completed fertility rate, see, for instance, Bongaarts and Feeney (1998) and Bongaarts and Sobotka (2012).

  7. We revisit this issue below.

  8. That has been calculated using data from the US National Center for Health Statistics. For the European case, the comparison is not so feasible because prior works focus on just one country, or they considered OECD countries. Andersson (2000) focuses on women’s employment and income to show a possible pro-cyclical behavior of fertility in Sweden during the 1980s and 1990s. Then, with this study, we only observe a similar behavior of fertility with respect to the pro-cyclical response. Kravdal (2002) also indicates a negative relationship between unemployment and fertility at the aggregate level in Norway from 1992 to 1998, and Örsal and Goldstein (2010), using data from OECD countries for 1976 to 2008 find a pro-cyclical response of the TFR until 2004, and no effect thereafter, with no interpretation of the magnitude of the relationship.

  9. Our sample includes 27 European countries that were European Union (EU) members in 2013 (the accession of Croatia took place on 1st July 2013, so this country is not included). We have also added 3 other countries to the analysis: Iceland, Norway, and Switzerland. Iceland and Norway were not EU members but were part, as the rest of the EU countries, of the European Economic Area (EEA), which allowed them to be part of the EU’s single market. Switzerland was neither an EU nor an EEA member, but was part of the single market. All nationals of those countries have the same rights to live and work in other EEA countries. Liechtenstein was also part of the European Economic Area, but is not included because of problems of availability of data.

  10. Note that for the case of France, we use information for metropolitan France from Eurostat due to the scarcity of data available in that dataset for the whole of France in the period considered. Results do not vary substantially when we use the somewhat scarce information for the whole of France. Data for the year 2013 is obtained from the INSEE dataset in the case of metropolitan France.

  11. The analysis has also been repeated using male and female unemployment rates; see below. Results do not vary.

  12. Despite this being true, we address later the endogeneity concerns that the use of the total unemployment rate may generate to capture the effect of the business cycle on fertility.

  13. Data is obtained from Eurostat. Education levels by ISCED (International Standard Classification of Education).

  14. Results are maintained when country-specific quadratic time trends are incorporated in the specifications.

  15. We should note that the number of observations decreases after adding those controls on the age and education of women, since this information is not available for all countries in the whole period under consideration. Results do not change when we consider the whole sample without those controls.

  16. For robustness, we repeat all our estimates with/without population weights, with/without women’s population weights, and with/without clustering the standard errors, and our results do not vary. In addition, we repeat all estimates, removing each country at a time, while at the same time removing those countries with low and high fertility rates and unemployment rates, finding very similar results to those shown in Table 2.

  17. It is also still possible to surmise that we are not properly considering the most accurate duration of the lag for the unemployment rate, though it is not theoretically clear. For this reason, we follow the prior literature, examining the lagged impact of unemployment on several demographic variables, and we add the unemployment rate lagged from 1 to 2 years (Amato and Beattie 2011; González-Val and Marcén 2017; González-Val and Marcén 2018; Schaller 2013). When we incorporate in the analysis both the one-period and the two-periods lagged total unemployment rates, the latter do not appear to play a role, since the coefficients capturing the effect of these variables are not statistically significant. When we use the female and male unemployment rates as alternatives to the total unemployment rate, conclusions do not change. In any case, what is important to our analysis is that fertility shows, once again, a pro-cyclical behavior.

  18. Results using per capita GDP and the employment rate to capture the business cycle dynamics, which are not shown for the sake of conciseness, also point to the pro-cyclical behavior of fertility.

  19. Estimations are not presented due to space constraints, but all are available on request. All estimates in this section include controls for the age structure and the education level of women, previously defined.

  20. Although one may argue that this impact is heterogeneous across countries, we can expect the direction of this effect to be the same, since it means joining a common market, with greater commercial facilities.

  21. Fifteen countries joined the European Union during the sample period: in 1995 (Austria, Finland and Sweden), in 2004 (Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia), and in 2007 (Bulgaria and Romania). Seventeen countries adopted the Euro during the sample period: in 1999 (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain), in 2001 (Greece), in 2007 (Slovenia), in 2008 (Cyprus and Malta), in 2009 (Slovakia), and in 2011 (Estonia).

  22. Since children increase the value of marriage (Stevenson 2007), and a job loss introduces instability (Doiron and Mendolia 2012), some couples may decide to have children to reinforce the marriage and make it more difficult to break. Then, we would expect a different response to the unemployment situation for a married couple than for a single mother.

  23. We should remark that we have repeated the regressions incorporating as control the crude marriage rate, and results are unchanged. Nevertheless, because of endogeneity concerns, we do not include this in the paper.

  24. According to OECD “the foreign-born population covers all people who have ever migrated from their country of birth to their current country of residence. The foreign-born population data shown here include people born abroad as nationals of their current country of residence”.

  25. We note that we have tested our findings after the inclusion of much more potentially problematic measures of the generosity of welfare systems, since they are, clearly, highly correlated with business cycle dynamics, such as cash benefits calculated as a percentage of GDP, family monthly allowances, cash benefits during maternity leave, and others. Our findings always are similar: there is a pro-cyclical response of the fertility rate to the business cycle proxy. Due to the possible bias that those variables can produce, we do not include them in this article, but it is reassuring that results are maintained.

  26. According to the source of the data (The Family Database), “data generally include children using centre-based services (e.g. nurseries or day care centres and pre-schools, both public and private), organized family day care, and care services provided by (paid) professional child-minders, and exclude those using unpaid informal services provided by relatives, friends, or neighbors. Exact definitions do, however, differ across countries”.

  27. Results are quite similar when we use the lagged overall unemployment rate or the lagged female unemployment rate. For this reason, we have only included as explanatory variable the lagged overall unemployment rate in the entire paper.

  28. The tests of endogeneity considered are Wu-Hausman F test (the p-value obtained is 0.224) and Durbin-Wu-Hausman chi-sq test (the p-value obtained is 0.184).

  29. This version of the indicator uses 8 data items concerning regulations for individual dismissals. It does not incorporate other items, such as the regulation of collective dismissals, due to problems of data availability (the version including more items is only available for the period 2008–2013).

  30. In all figures, the level of the institutional context corresponds to that achieved in percentile 10 and percentile 95, and at the average value of each.

  31. https://www.consilium.europa.eu/en/press/press-releases/2019/01/24/better-work-life-balance-for-eu-citizens-presidency-reaches-provisional-agreement-with-the-european-parliament/

  32. We have included all the controls specified in Eq. (1).

  33. Moreover, quantile regressions are invariant to monotonic transformations of the dependent variable, such as logarithms.

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Acknowledgements

This research has been funded by the Regional Government of Aragon (Grant S32_17R) and the European Fund of Regional Development (FEDER 2014–2020). We would like to thank the editor and the reviewers for their time and valuable remarks. The usual disclaimers apply. The responsibility for the analysis and conclusions presented in this article belongs solely to the authors.

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    Héctor Bellido & Miriam Marcén

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Bellido, H., Marcén, M. Fertility and the business cycle: the European case. Rev Econ Household 17, 1289–1319 (2019). https://doi.org/10.1007/s11150-019-09449-y

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