er Wage Gap and Fertility

THE ECONOMIC RECORD, VOL. 88, SPECIAL ISSUE, JUNE, 2012, 8899Economic Growth, Gend

Rebound*

CREINA DAY

Australian National University, Canberra, Australia

mecouThicey iisinsitivrob-canol r

I IntroductionIn 1900, world population was approximately

1.6 billion. By 2000, the two figures changedplaces to 6.1 (Uthe twentieth cethe century of potury promises tofor most developare not a foreespecially sensitfuture course oabove the Unitfertility variant ypeople in the d

of the century, the size of Europes currentpopulation.The sensitivity of population projections to

erest in the factg a fundamentaleen fertility andbasis of cross-covering more

t al. (2009) findtive relationshipent now resem-development. InHuman Devel-

exceeding 0.9,1

* This paper benefited from the helpful commentsof two anonymous referees, Patricia Apps, Bruce

JEL classifications: J13, J24, 040Correspondence: Creina Day, Arndt-Corden Depart-

1 The HDI is an index, primarily used by the United

most OECD economies, HDI levels exceed 0.9, whichcorresponds to 75 years life expectancy, per capitament of Economics, HC Coombs Building (No. 9),The Australian National University, ACT 0200,Australia. Email: creina.day@anu.edu.au

Gross Domestic Product (GDP) US$25,000 in year2000 PPP and a 0.95 human capital index (based onliteracy and enrolment rates).Chapman, Jenny Corbett, Akira Kawaguchi, PeterMcDonald and other participants of AJRC 2011 andACE 2011. The usual disclaimer applies.

Nations to evaluate development, which combineswith equal weight indicators of a countrys healthconditions, standard of living and human capital. For 2012 The Economdoi: 10.1111/j.1475nited Nations, 2011). Whereasntury may be described aspulation, the twenty-first cen-be a century of depopulationed countries. These projectionsgone conclusion. They areive to assumptions about thef fertility. Just half a childed Nations (2011) mediumields an additional 700 millioneveloped world by the end

fertility assumptions sparks intthat we are currently witnessinchange in the relationship betweconomic development. On thesectional and longitudinal datathan 100 countries, Myrskyla ethat the well-established negabetween fertility and developmbles a J at advanced stages of2005, as countries progress toopment Index (HDI) levelsFertility and per capita incoacross most high income OECDder wage gap persist in Japan.endogenous increases in the priin the allocation of capital plaper capita income growth and rtility. Results indicate that a poand per capita income is notfemale relative wages if childhigh; female relative wages maymen work with increasing capita88

ic Society of Australia-4932.2012.00799.xare now positively associatedntries. Low fertility and a gen-s paper presents a model whereof child-care and gender equitymportant roles in the effect ofg female relative wages on fer-e relationship between fertilityust: overall fertility rises withre productivity is sufficientlyt rise with per capita income ifelative to women.

the HDI-fertility association reverses to a posi- Two particularly interesting results of themodel presented in this paper are, firstly, thatfertility of households purchasing child-carerises with female relative wages despite endo-genous increases in child-care prices, however,a positive relationship between overall ferti-lity and female relative wages is not robust.

2012 ECONOMIC GROWTH, GENDER WAGES AND FERTILITY 89tive relationship.The recent reversal of fertility decline in

many OECD countries raises two questions.First, is the fertility rebound likely to be sus-tained? Second, why does low fertility persist insome countries, such as Japan? These questionshave relevance and importance for the debate onageing population and associated immigrationand pro-natalist policies.The HDI does not reveal information on how

its components of per capita GDP, educationand longevity interrelate or aspects of develop-ment which benefit women rather than men. Theobjective of this paper is to re-examine the theo-retical relationship between fertility, femalewages relative to male wages and per capitaGDP in light of recent evidence.Galor and Weil (1996) show that female

wages rise relative to male wages with per capitaGDP because men and women are endowed withdifferent labour. The rising opportunity cost ofmaternal time induces fertility decline since onlytime is used to rear children. Apps and Rees(2004), Day (2004) and Martinez and Iza (2004)show that rising female relative wages mayinduce a rise in fertility if households can substi-tute child-care for maternal time. However, theprice of child-care is fixed in these models. Thisis a shortcoming when assessing whether a fer-tility rebound is likely to persist, since increaseddemand may raise the price of child-care.In contrast to the existing literature, this paper

analyses whether a positive impact of femalerelative wages on fertility can be sustained asrising demand for children puts pressure onchild-care prices to rise and whether female rel-ative wages necessarily rise with per capitaGDP. Whether a fertility rise can be sustainedrests on the relative rise in child-care prices.Why Japan, with high per capita GDP, missesout on a fertility rise may depend on whethergrowth in per capita GDP filters through tohigher female relative wages.This is the first paper to model the effect of

rising female relative wages on fertility withendogenous increases in the price of child-careand to link rising female relative wages to gen-der differences in capital allocations in theworkforce. These extensions enable us to assessthe robustness of an emerging positive relation-ship between fertility and per capita GDPwitnessed in most OECD economies and thepersistence of low fertility in Japan. 2012 The Economic Society of AustraliaSecondly, economic growth may not raisefemale relative wages if, relative to women,men work with increasing capital. These resultshave a wide range of implications for the role ofgender equity, child-care policy and the use ofcurrent fertility trajectories in formulating popu-lation projections.Section II reports on some empirical facts

concerning total fertility rates, per capita GDPand the gender wage gap in OECD countriesand reviews related models of endogenous fertil-ity in light of these facts. Section III provides atheoretical framework capable of analysing theeffect of female relative wages on fertility, withan endogenously determined market price ofchild-care. Section IV relates the results of thetheoretical modelling to recent trends in Japa-nese female relative wages and discusses why agender wage gap may persist, despite growth inper capita GDP.

II Facts and Review of Related ModelsEndogenous fertility models explain growth in

per capita GDP as a cause and consequence ofhousehold choice of fertility. This section sin-gles out the association between per capita GDPand the total fertility rate,2 which provides auseful platform for developing a theoreticalmodel. Endogenous fertility models recognisethat the opportunity cost of maternal time influ-ences household fertility choice. This sectiontherefore also examines the role of genderwages.As a cross-sectional measure, the total fertil-

ity rate can rebound due not only to a rise incompleted family size (demand for children)but also to the end of birth postponement(tempo-effects). Goldstein et al. (2009) find thattempo-adjusted fertility rates have indeed risen,suggesting that increased demand for children,analysed in this paper, has accompanied

2 The total fertility rate indicates the average birthsper woman in her lifetime if she were to experiencethe current age-specific fertility rates through herlifetime.

the recent fertility rebound in most OECDcountries.3

Observation 1. The once strictly negativecross-country association between fertilityand per capita GDP has become positive formost OECD economies with high levels of percapita GDP.

similar to that in Figure 2. There is a high gen-

90 ECONOMIC RECORD JUNEFigures 1 and 2 depict the once strictly nega-tive and emerging positive cross-country corre-lation between fertility and per capita GDP,respectively. For 20032007, the correlationbetween fertility and per capita GDP is positiveand significant across countries with per capitaGDP above 15,000 international dollars,4 sug-gesting the emergence of a relationship that isconvex across all OECD economies and positivefor most OECD economies with high per capitaGDP. Of course, there is a need to control forcross-country heterogeneity. Luci and Thevenon(2011) do this and confirm a convex impact ofper capita income on fertility, for OECD econo-mies, after controlling for birth postponementand country-specific effects. Some outliers areworth mentioning. Higher fertility in the UnitedStates and New Zealand is partly due to His-panic populations, religious and ethnic diversityand Maori populations, respectively (McDonald,2008).More than an emerging positive relationship,

Figure 2 shows a divide between two groups ofcountries with the same levels of per capitaGDP, but with either high or low fertility. Forinstance, Japan and Germany have much lowerfertility than France, Finland, Australia, UnitedKingdom, Sweden and Belgium. Figure 3 sug-gests a possible explanation as to why Japanmay be at the bottom rather than the top of thesteep positive association between fertility andper capita GDP. In Japan, female wages areroughly two-thirds of male wages, almost twicethe OECD average gender wage gap of 17.6 percent. Figure 3 shows that countries with thehighest gender wage gap, Japan and Korea, alsohave very low fertility. This is not to say thatcountries with the lowest gender wage gap havethe highest fertility. Figure 3 shows a divide

3 Developing the model in this paper along the linesof Guest and Parr (2010) to incorporate timing effectsis a feasible direction for future research.

4 The correlation coefficient is 0.68, significant atthe 1 per cent level, with a P-value of 0.0003.der wage gap, low fertility trap, but loweringthe gender wage gap is necessary but not suffi-cient for fertility rebound. The opportunity toreconcile work and family life is a key factordetermining on which side of the divide a coun-try falls (Thevenon, 2011). This is a theme thatthis paper develops in the context of child-careprovision.

Observation 2. OECD economies with thehighest gender wage gap (lowest female rela-tive wages) have the lowest fertility.

Existing models of endogenous fertility pre-dict that economic growth induces fertilitydecline, by raising either female relative wages,and hence the opportunity cost of maternal time,(Barro & Becker, 1988; Galor & Weil, 1996),the relative return to investing in education perchild (Becker et al., 1990; de la Croix &Doepke, 2003) or the fraction of skilled work-ers, who have fewer children than theirunskilled counterparts (Dahan & Tsiddon, 1998;Kimura & Yasui, 2007; Chen, 2010).In the main, endogenous fertility models pre-

dict an unambiguously negative interrelationshipbetween per capita GDP and fertility for highincome economies. However, Apps and Rees(2004) and Day (2004) extend Galor and Weil(1996) to show that fertility may rise withfemale wages and female relative wages, respec-tively, if there is sufficient substitutability inrearing children between maternal time andchild-care services. Intuitively, substitution tochild-care enables households to mitigate therising opportunity cost of unpaid maternal time,which underpins fertility decline.By normalising the price of child-care to one,

both models implicitly fix the relative price ofchild-care. A fixed price of child-care is in factan assumption common to models where child-care is a substitute for maternal time (Martinez& Iza, 2004; Hirazawa & Yakita, 2009). Marti-nez & Iza (2004) incorporate a child-care sector,thereby endogenising the price of child-care.However, their assumption that child-care usesunskilled labour yields a constant price of child-care.Yasuoka and Miyake (2010) introduce Marti-

nez and Izas (2004) child-care market to themodel of de la Croix and Doepke (2003), wherehouseholds choose the number and educationlevel of children. Since labour is skilled, theprice of child-care rises proportional to the 2012 The Economic Society of Australia

Nngdo

inlan

I

FIGURE 1Fertility and Per Capita GDP in OECD Countries, 19801984

2012 ECONOMIC GROWTH, GENDER WAGES AND FERTILITY 911

1.2

1.4

1.6

1.8

2

2.2

2.4

2.6

2.8

3

0 5000 10 000 15 000

South Korea

Chile

Hungary

Portugal

Slovak Republic

Ireland

Spain

Greece

United Ki

F

Total fertility rate (births per woman)average level of education. The assumption thathouseholds do not comprise men and womenyields tractable analysis. However, like percapita income, average education levels in thelow-fertility countries, such as Japan andKorea, are similar to those in the higher-fertil-ity OECD countries. Observation 2 suggeststhat a model be developed along the lines ofGalor and Weil (1996) where the gender wagegap plays a role in fertility choice. Overlookedin the existing literature is the effect of femalerelative wages on fertility under endogenouschild-care prices.This paper further extends the literature by

considering herein that the price of child-care isgiven by equilibrium in the market for child-care services which employs skilled femalelabour. I find Martinez and Izas (2004) modelof the child-care sector to be a useful startingpoint for the analysis in this paper, whichfocuses on whether a positive relationshipbetween fertility and female relative wages canbe sustained as rising demand for child-careputs pressure on child-care prices to rise. In the

GDP per capita, PPP, constan

Source: World Bank (2009).

2012 The Economic Society of Australia20 000 25 000 30 000 35 000

ew Zealand

m

d

taly

AustraliaFrance

Iceland

SwedenAustriaNetherlands

DenmarkGermany

CanadaUnited States

Switzerland

Japan

Belgiumfollowing section, like Martinez and Iza (2004)I assume that market child-care and maternaltime are perfect substitutes and explain whyfemale wages are lower than male wages, whichgives the division of labour.

III The ModelConsider an economy where agents supply

labour, consume and use either maternal time orpurchased child-care to rear children. The basicunit of analysis is the couple and they areassumed to be together from birth, as in Galorand Weil (1996). The household, headed by aman and a woman with joint consumption andutility, decides how many children to have andwhether to rear children using maternal time orpurchased child-care.5

t 2005 international dollars

5 In countries where the opportunity cost of pater-nal time is low, couples may choose paternal time asa substitute or supplement for maternal time. Extend-ing the household choice set to include paternal timeis an interesting direction for further research.

ealan

ea

S

FIGURE 2Fertility and Per Capita GDP in OECD economies, 20032007

92 ECONOMIC RECORD JUNE1

1.2

1.4

1.6

1.8

2

2.2

2.4

2.6

10 000 15 000 20 000 25 000

New Z

South Kor

MexicoTurkey

Chile

Slovak RepublicHungary

Portugal

Greece

Total fertility rate (births per woman)(i) Household OptimisationEach agent (household) derives utility directly

from the number of children. The householdutility function is

u c ln n 1 c ln c 1where c and n denote household consumptionand pairs of children, respectively; c 2 (0,1)captures the relative preference for children.Each man and woman is endowed with a unit

of time. Men allocate their unit time endowmentto the paid labour force. To raise a pair of chil-dren, women may employ a fraction of theirtime endowment, z^ 2 0; 1, in which case theirpaid labour supply is 1 z^n . Alternatively,women may buy out their unpaid time in child-rearing for a child-care fee, P, thereby raisingtheir paid labour supply to one.The budget constraint of a household not pur-

chasing child-care is

1 mwf z^n c 1 s wm wf 2where m is the rate of maternity pay and con-sumption is taxed at the rate of s. Alternatively,

GDP per capita, PPP, constan

Source: World Bank (2009).30 000 35 000 40 000 45 000

Japan

AustraliaFinland

Germanypain

Italy

United KingdomSweden

DenmarkNetherlands

Canada

SwitzerlandAustria

BelgiumFranced United States

Iceland

Irelandthe household may pay a fee of P, subsidised atthe rate b, to use child-care services. Specifi-cally, if 1 mwf z^ P1 b the householdbudget constraint changes to

P1 bn c 1 s wm wf : 3Each household chooses n and c to maximise (1)subject to (2) or (3), yielding

nx c wm wf

1 mwf z^ if 1 mwf z^ < P1 b 4a

ny c wm wf

P1 b if 1 mwf z^ P1 b 4b

and ci 1 c wm wf = 1 s where i x, ydenotes a household using maternal time or buy-ing child-care, respectively.

Remark 1. As male and female wages rise,with female wages rising relative to malewages, fertility of a household using mater-nal time and child-care, declines andrises, respectively, for a given price ofchild-care.

t 2005 international dollars

2012 The Economic Society of Australia

States

Canad

Unite

rland

l

FIGURE 3Fertility and Gender Wage Gap i

2012 ECONOMIC GROWTH, GENDER WAGES AND FERTILITY 931

1.2

Poland1.4

1.6

1.8

2

2.2Total fertility rate (births per woman)

Greece

United

Belgium

New Zealand

Denmark

France

IrelandSweden

Australia

Netherlands

Finland

Switze

Portuga

Spain

Czech RepublicFrom (4),

d ln nxjm wm

wm wf d lnwm d lnwf < 0

d ln nyjP;b wmd lnwm wf d lnwf

wm wf > 0

The intuitive explanation for the differentialfertility response lies in a comparison of substi-tution and income effects. When both husbandand wife work, female wages constitute a por-tion of household income. When maternal timeis the child-rearing input, the cost of child-rearing rises proportionate to female wages. Asfemale relative wages rise, the substitutioneffect dominates the income effect and fertilitydeclines. When purchased child-care is thechild-rearing input, rising female relative wageshas a pure income effect, for a given price ofchild-care, and fertility rises.By implication, the average fertility, which

includes households who purchase child-care,

5 10 15 20

Gender gap in median earni

Source: OECD Employment Outlook (2008); World Bank (2009).

2012 The Economic Society of AustraliaJapan

Korea

Germany

a

d Kingdom

n 22 OECD Countries, 2006may increase as female relative wages rise. Thusfar the effect of rising female relative wages onfertility has been analysed for a given price ofchild-care services. This paper explores therobustness of a positive relationship betweenfertility and female relative wages, and so theprice of child-care is endogenised in a straight-forward manner by assuming that child-care isproduced using a portion of the female labourforce and sold at a price determined by marketdemand and supply.

(ii) Production of Final Output and Child-CareThe production of final goods is given by

Y AFLfy; Lmy 5where female labour employed in the final-goods sector (Lfy and male labour (Lmy are fac-tors of production, all with non-increasing mar-ginal products and A is a parameter that affectstotal factor productivity in final goods. Labouris augmented by human capital per worker, k.FLfy; Lmy is homogeneous of degree one and its

25 30 35 40

ngs of full time employees

first-order partial derivatives are homogenous ofdegree a 2 (0,1). Perfectly competitive factormarkets imply

wjy AFjLkj 6

where jf,m and @FjL=@kj> 0.Endogenous fertility models have various

mechanisms which link rising female relativewages to economic growth. Galor and Weil(1996), Doepke et al. (2007) and Greenwood

qLfx q uN 1 z^nx where N is the aggregate number of householdsand u is the fraction of households with womenworking in child-care.If wfx > w

fy then the woman works in the child-

care services sector. Alternatively, if wfx < wfy

then the woman works in the final-goods sector.Capital augmented labour moves between thetwo sectors so as to equate wages: wfx wfy orqPt wf ~k, where ~k is the level of capital perhousehold where female labour is employed inboth child-care and final-goods production.7

The aggregate demand for child-care services

94 ECONOMIC RECORD JUNEet al. (2005) attribute differential productivityin the labour market to innate differencesbetween male and female labour.6 Ex-ante gen-der differences explain why only women devotetime to unpaid work, such as child-rearing, andwhy, as capital accumulates, the marginal prod-uct of female labour rises proportionately morethan does the marginal product of male labour.The assumption that men and women areendowed with different labour yields two pre-dictions. First, female wages are lower thanmale wages for a given capital per worker.Second, economic growth brought about bycapital accumulation closes the gender wagegap. The reduced form of the equations isgiven by

wfyk < wmy k; @wmy =wfy=@k < 0 : 7Whereas men work in the final-goods sector,women may work in child-care services or final-goods sectors. The production of aggregatechild-care services is given by

X qLxf 8

where Lfx is female labour employed in child-care and q is a parameter that affects total pro-ductivity and also captures quality improve-ments in the child-care sector. The child-caresector profit is p PqLfx wfxLfx. Under perfectcompetition, we obtain wfx qP.

(iii) Child-Care MarketThe aggregate supply of child-care services is

6 Most widely used is the Galor and Weil (1996)stylised assumption that men are endowed with skilledlabour and physical labour (brains and brawn),whereas women are endowed only with brains. Ascapital accumulates, the marginal product of skilledlabour rises and female wages rise proportionatelymore than do male wages.is

nyNy cwm wf

P1 b 1 u N

where Ny is the number of households withwomen working in the final-goods sector. IfP1 b < 1 mwf k^z then the householduses child-care services. Alternatively, ifP1 b > 1 mwf k^z then the householduses maternal time to rear children. Let k denotethe level of capital per household where theeconomy comprises both households usingmaternal time and buying child-care: P1 b 1 mwf kz^.If we assume qz^ 1 b=1 m, for sim-

plicity,8 then we obtain ~k k and the economywill comprise households of two types,described herein. The economy is populated bywomen who work in the final-goods sector anduse child-care, and women who work in child-care services and use their own time to rearchildren.

(iv) EquilibriumThe market price of child-care services is

determined so that demand coincides with sup-ply, yielding

7 Developing the model along the lines of Baumol(1967) where equating wages across sectors impliesrising costs in a relatively low productivity child-caresector is an interesting direction for further research.In this case, child-care remains viable if demand isinelastic or subsidies keep up with rising costs.

8 As in Yasuoka and Miyake (2010), this assump-tion excludes two additional household types: onewhere women work in the goods sector and do notpurchase child-care, the other where women work inchild-care and purchase child-care. 2012 The Economic Society of Australia

P1 b 1 uu

c

1 c 1q

cwm wf 1 m1 m c cwm=wf

9where wj(k).

P changes in response to market demand andsupply forces, to satisfy (9). On the one hand,market demand for child-care increases in theincome, and fraction of households with womenorking in final production, wm wf and

demand for fertility of households purchasing

2012 ECONOMIC GROWTH, GENDER WAGES AND FERTILITY 95(1)u), respectively, and the preference weightfor children, c. However, market supply ofchild-care increases in the fraction of house-holds with women working in child-care, u,productivity in the sector q and labour supply tothe sector, which increases in wf=wm, sincehigher female relative wages reduces fertility ofwomen working in child-care, freeing up timefor paid work. In equilibrium, the sectoral allo-cation of labour stabilises and, ceteris paribus, Pincreases with rising wm(k) and wf(k).9

Remark 2. Fertility of a household usingchild-care rises with female relative wages,for an endogenously increasing price of child-care.

From Equations (4b) and (9),

@ny

@ wm=wf uqc

1 u 1 m < 0 10

where u is constant in equilibrium.The intuitive explanation for a rise in fertility

of households purchasing child-care as femalerelative wages rise lies in the market influenceson the price of child-care. From Equation (9), iffemale relative wages wf=wm

rise, then the

equilibrium price of child-care rises proportion-ately less than household income wm wf .Demand for child-care shifts out with risinghousehold income. Supply of child-care alsoshifts out with rising female relative wages,because of the reduced fertility and increasedlabour supply of child-care workers. An increasein wm wf has a positive income effect on the

9 Martinez and Iza (2004) is a special case of themodel where female labour employed in child-care isunskilled. In this case, wfx does not increase with kand perfect competition implies P is constant, yieldingthe unsurprising result that fertility rises unambigu-ously with female relative wages for an endogenouslyconstant price of child-care.w 2012 The Economic Society of Australiachild-care. This flows through to the market forchild-care, driving up the price. A rise inwf=wm

has a positive substitution effect on thesupply of labour for women working in child-care. With this supply effect, the rise in thechild-care price will be proportionately less thanthe rise in household income and the fertility ofhouseholds purchasing child-care rises.

Remark 3. Overall fertility in the economyrises with female relative wages if productiv-ity in the child-care sector is sufficiently high.

The overall fertility of the economy is aweighted average of the fertility of householdsusing child-care and maternal time. From Equa-tions (4a) and (4b), overall fertility rises withfemale relative wages for a sufficiently high q:

@f

@ wm=wf u

1 m c1z^ q

< 0 iff q >

1z^

Intuitively, the fertility of women working inchild-care and final-goods sectors falls and rises,respectively, as female relative wages rise.Whether overall fertility rises or falls dependson the relative weight attached to differentialfertility responses. A relatively high q implies arelatively lower price of child-care, giving ahigher weight to the fertility rise of householdsworking in the final-goods sector.

IV Female Relative Wages in JapanCigno and Rosati (1996) show that the decline

in fertility up until 1990 corresponded to asteady rise in the female-male wage ratio in theUnited States, United Kingdom, Germany andItaly. Since 1990, female wages have continuedto rise relative to male wages in most OECDeconomies. Approximately 80 per cent of thecountries for which data are available have seenan increase in the ratio of female to male aver-age monthly wages (ILO, 2010). In Japan,female relative wages rose until recently.Between 1989 and 1999, Japans female-malewage ratio rose from 56 per cent to 66 per cent(Ministry of Health, Labour and Welfare, 2010).However, Figure 4 reveals that, since 1999,female hourly wages have grown broadly in linewith male hourly wages.If female relative wages are constant, then

the results of our analysis indicate that neitherfertility of households using child-care, noroverall fertility in the economy will rise, under

4FIGURE 4Japanese Female and Male Hourly Wages*

96 ECONOMIC RECORD JUNE0.4

0.5

0.6

0.7

0.8

0.9

1

1999 2000 2001 2002 2003 200endogenously determined child-care prices.These findings are consistent with the bottom-ing out of fertility in Japan. According toEquation (7), based on the existing literature,economic growth causes female relative wagesto rise. However, this is at odds with thefollowing

Observation 3. Despite economic growth,Japanese female relative wages have remainedrelatively constant over the last decade.

Why then does a gender wage gap persistin Japan? An implicit assumption underlyingEquation (7) is that men and women work withthe same human capital. Women and men maybe similarly endowed in terms of skilled labourwhen they graduate and, consistent with Galorand Weil (1996), jobs requiring brute force aremost likely male dominated, but do skilled menand women work with the same human capitalin the workforce? Empirically, much of Japansgender wage gap is explained by genderinequity in firm-specific human capital, such as

Log (Male hourly wages) Female to male

Notes: *Hourly wage rate for employees 2044 years old calcearnings/12)]/actual number of hours worked, 19992009.Source: Ministry of Health, Labour and Welfare (2010).2005 2006 2007 2008 2009 2010on-the-job training, tenure and promotion (Hori& Nohara, 2006; Kumlin, 2007). How capital isallocated between men and women may hold thekey to the persistence of a gender wage gap.To see this, consider the case where women

rely on their own labour to rear children due toa lack of marketised child-care and family-friendly work policies and men and womenwork with different amounts of human capital,km and kf. The gender wage gap is now

wmwf

FLkm

FLkf 1 za km

kf

a11

where z is total maternal time spent rearing chil-dren. For Japanese women, the probability offinding regular employment after career inter-ruption due to childbearing is low. Consistentwith diminishing marginal returns, lower femalelabour supply (1 ) z) raises the marginal prod-uct of female labour and female relative wages.However, an increase in the ratio km=kf raisesmale relative wages, countering the negative

wage ratio Log (Female hourly wages)

ulated as [contractual cash earnings + (annual special cash

2012 The Economic Society of Australia

2.2

25

s an

Total Fertility Rate (births per woman)

ark

ether

Gr

Cze

FIGURE 5Fertility and Women in Senior Positions, OECD Countries, 2007

2012 ECONOMIC GROWTH, GENDER WAGES AND FERTILITY 971

1.2

1.4

1.6

1.8

2

5 10 15 20

Female Legislators, Senior Official

Korea

Japan

Denm

Neffect of low female labour supply.10 Hence, theeffect of economic growth on female relativewages is no longer unambiguously positive,yielding the following

Remark 4. If men work with increasing capi-tal relative to women, then capital accumula-tion need not close the gender wage gap.

Many Japanese firms have a lifetime employ-ment system (LES), which may provide incen-tives for men to work with increasing capitalrelative to women. First, patriarchy is strongestin older generations, who remain in decision-making positions. Second, investment in humancapital is mostly confined to regular workers,hired into a company, who put in long hoursand who are likely to have uninterruptedcareers. Women are more frequently hired asnon-regular workers for a specific task, where

Source: World Bank (2009).

10 In the existing literature, female labour supplyrises, countered by capital accumulation which raisesthe relative marginal product of female labour, so thatoverall female relative wages rise.

2012 The Economic Society of Australia30 35 40 45

d Managers as a percentage of total

lands

eece

Iceland

ch Republic

Austria

Finland

SpainItalySlovenia

Switzerland

Poland

HungaryGermany

Belgium

Canada

Ireland

Sweden

NorwayUnited Kingdom

Australia

France New Zealand

United Statesaccess to on-the-job training is limited, and it iseither impossible or difficult to move from non-regular to regular employment when returningto work after childbirth (OECD, 2003). Third,because the LES avoids dismissal, firms adjustlabour input by adjusting working hours. Over-time is therefore necessary under usual eco-nomic conditions. Married women may beunable to provide long working hours due togender inequity in housework.As a consequence, few women are likely to

reach positions where they can work with andacquire high levels of capital and, in turn, influ-ence the allocation of capital. Referring toFigure 5, Japan and Korea are indeed clearOECD outliers in the portion of women insenior positions. In Japan, only 10 per cent ofsenior positions are held by women.

V ConclusionThe once negative association between fertil-

ity and per capita income has become positivefor OECD economies with high levels of percapita income. There are some notable excep-tions. Countries such as Japan and Korea with

the lowest female relative wages also have thelowest fertility.

substitution for maternal time. For instance,low fertility is associated with a low share of

98 ECONOMIC RECORD JUNEThis paper analyses the effects of female rela-tive wages on fertility in a model that incorpo-rates a child-care services market. In contrast tothe existing literature, endogenous increases inthe price of child-care and gender equity in theallocation of capital play important roles in theeffect of female relative wages on fertility andthe effect of economic growth on female rela-tive wages, respectively. The analysis predictsthat:

1 As female relative wages rise, the equilibriumprice of child-care rises less than proportion-ate to household income. Consequently, fertil-ity of households using child-care rises.

2 Overall fertility, which includes householdswho use maternal time to rear children, mayrise with female relative wages if productivityin the child-care sector is sufficiently high.

3 Growth in per capita output may not filterthrough to higher female relative wages if menwork with increasing capital relative towomen.

For an endogenously increasing price ofchild-care, the fertility of households usingchild-care and maternal time, rises and falls,respectively, with female relative wages. Over-all fertility rises if the rise in fertility of house-holds using child-care dominates. This in turndepends on a relatively low-cost, high-produc-tivity child-care sector.The results in this paper suggest that the

emerging positive association between fertilityand per capita income is not robust. Firstly, eco-nomic growth may not filter through to risingfemale relative wages if capital is inequitablyallocated in the workforce. Secondly, whetherrising female relative wages can sustain a fertil-ity upturn depends on relative productivity ofthe child-care sector.Some interesting implications arise for coun-

tries with similar per capita GDP, but witheither high or low fertility. Within the high fer-tility cluster, we may expect a positive associa-tion between fertility and female relative wagesto continue in countries with well established,efficient child-care sectors. More equitable allo-cation of capital between male and femaleworkers may hold the key to a fertility upturn inJapan, where female relative wages have lev-elled off over the past decade. In other countrieswith low fertility, cultural factors may impedehousework done by men (Feyrer et al., 2008).Nesting household choice of work within thefamily in the model presented in this paper is aninteresting and feasible direction for futureresearch.

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