Fertility, Female Labor Force Participation, and the Demographic Dividend

David E. BloomDavid CanningGünther Fink

Jocelyn E. Finlay

Program on the Global Demography of AgingHarvard School of Public Health

Second Annual Research Conference on Population, Reproductive Health, and Economic Development, December 8-9 2007

This research was made possible by Grant Number 5 P30 AG024409 from the National Institute on Aging, National Institutes of Health and by a grant from the William and Flora Hewlett Foundation.

Fertility, Female Labor Force Participation, and the Demographic Dividend 2

Main Questions in this Paper1. How do fertility changes during the demographic transition affect

female labor force participation?2. What are the long run implications for the size of the demographic

dividend?

IdentificationWe identify the effect of fertility using abortion laws as instrument

ResultFertility declines lead to a significant increase in female labor force participation augmenting the demographic dividend

Fertility, Female Labor Force Participation, and the Demographic Dividend 3

Outline

• Introduction and Literature• Data• Empirical Results• Simulations• Conclusion

Fertility, Female Labor Force Participation, and the Demographic Dividend 4

Introduction and Literature Continued

Female Participation Response to Fertility – US state-level studies show that a fall in fertility leads to an increase in

the extent of female labor force participation: Bailey (2006), Cain and Dooley (1976).

Identification Approaches– Accessibility of the contraceptive pill: Bailey, 2006– State level legalization of abortion:

Fertility effect: Levine et al. (1999); Klerman (1999)Education and Participation: Angrist and Evans (1996)

Fertility, Female Labor Force Participation, and the Demographic Dividend 5

Identification

FertilityFemale Labor Force Participation

Abortion Legislation

Fertility, Female Labor Force Participation, and the Demographic Dividend 6

Data

Female Labor Market Participation (ILO 2007)– By cohort (15-19, 20-25,…,60-64)– 1950-2000– 97 countries

Fertility (WDI 2006)– Total fertility rate

Abortion Index (United Nations Population Division 2002)– Combined score of legal abortion on grounds of physical and

mental health of the mother, life-threatening pregnancies, rape, fetal impairment, economic hardship, on request

– Items highly correlated; index very similar to principal component

Fertility, Female Labor Force Participation, and the Demographic Dividend 7

Female Labor Force Participation 1960 and 2000

0

10

20

30

40

50

60

70

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

Age Group

Perc

enta

ge P

artic

ipat

ing

1960 2000

Fertility, Female Labor Force Participation, and the Demographic Dividend 8

Empirical Specification

ijt i i jt i jt i jt i jt

f mi jt i jt it ij ij ijt

P Fert Cap Life Urban

Eduf Edum t

α β γ ϕ λ

φ φ δ δ τ ε

= + + + +

+ + + + + +

Pijt female labor force participation of age group i, country j, year t

Fertjt total fertility rate

Capjt capital stock per working age person

Urbanjt population living in urban area (%)

Edufjt average years of schooling for females >15

Edumjt average years of schooling for males >15

Fertility, Female Labor Force Participation, and the Demographic Dividend 9

Female Labor Force Participation (30-34)

2SLS 2SLS, trend 2SLS, trend, lagTotal Fertility Rate -17.056*** -9.815** -7.686*

(5.359) (3.866) (3.975)0.497***(0.083)

Female life expectancy -0.413 0.182 0.165(0.275) (0.142) (0.110)

Capital to Working age population 0.706*** 0.368** 0.201(0.114) (0.153) (0.141)

Urban population (% of total) -0.662*** -0.387** -0.242(0.159) (0.168) (0.202)

Average schooling years, male >15yrs 1.190 1.596 0.728(1.587) (1.193) (1.043)

Average schooling years, female >15yrs -4.508 -3.497** -1.612(3.162) (1.735) (1.483)

Observations 770 770 673R-squared 0.82 0.98 0.99

Fertility, Female Labor Force Participation, and the Demographic Dividend 10

First Stage Results

2SLS 2SLS, trend 2SLS, trend, lagAbortion Index -0.068*** -0.045*** -0.035**

(0.017) (0.016) (0.015)-0.018***(0.004)

Female life expectancy -0.040*** 0.029*** 0.021***(0.009) (0.007) (0.007)

Capital to Working age population 0.022*** 0.035*** 0.032***(0.002) (0.004) (0.004)

Urban population (% of total) -0.019*** -0.036*** -0.045***(0.006) (0.007) (0.008)

Average schooling years, male >15yrs 0.231*** 0.262*** 0.230***(0.059) (0.053) (0.050)

Average schooling years, female >15yrs -0.569*** -0.415*** -0.345***(0.059) (0.058) (0.057)

Observations 770 770 673R-squared 0.96 0.99 0.99Cragg-Donald F-stat 16.34 8.26 5.71

Fertility, Female Labor Force Participation, and the Demographic Dividend 11

Total Dynamic Effect of Fertility Decline

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

Age Group

Part

icip

atio

n Ef

fect

Direct Effect Total effect

Fertility, Female Labor Force Participation, and the Demographic Dividend 12

Simulation Framework I

1t t t tY A H Kα α−=• Production Function

• Physical Capital Stock

• Parameterization

1 1(1 )t t tK sY Kδ− −= + −

2 , 0.24, 0.083

0

s

At

α δ= = =

∂=

∂

Fertility, Female Labor Force Participation, and the Demographic Dividend 13

Simulation Framework II

• Demographic Structure

• Labor Force

( )

45

1, 1 1 016

1 1,s s s s fit i t i t s it it

iP P for i P f Pσ λ− − −

=

= − ≥ = ∑

100

0 ,

s st it it

i s m f

L P ρ= =

=∑ ∑

Fertility, Female Labor Force Participation, and the Demographic Dividend 14

Specific Example: South Korea

1960 2000

Fertility (TFR) 5.6 1.2

Life Expectancy at birth

55.2 76.8

Female Labor Market Participation (25-29)

26.3 55.7

Fertility, Female Labor Force Participation, and the Demographic Dividend 15

Results

0

50

100

150

200

250

300

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

GD

P In

dex

BaselineSolow Age StructureAge Structure + Female Participation

Fertility, Female Labor Force Participation, and the Demographic Dividend 16

Conclusions

Empirical results suggest that the decline in fertility leads to a significant increase in female labor force participation

This increase in female labor force participation compounds the positive growth effects induced by fertility decline

The magnitude of aging effect depends on the participation behavior of the 65+ age group – the focus of our complementary study

Fertility, Female Labor Force Participation, and the Demographic Dividend 17

Backup Slides

Fertility, Female Labor Force Participation, and the Demographic Dividend 18

Case Study: South Korea

0

10

20

30

40

50

60

70

1960 1965 1970 1975 1980 1985 1990 1995 2000

Parti

cipa

tion

Rat

es

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Tota

l Fer

tility

Rat

e

Total Fertility Rate

Female Labor Market ParticipationAges Group 25-39

Female Labor Market ParticipationAges 40-54

January 1973: Liberalization of abortion

Since 1953: Abortion prohibited on any ground.

Fertility, Female Labor Force Participation, and the Demographic Dividend 19

Korea: Demographics and Workers per Capita

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 21100

0.1

0.2

0.3

0.4

0.5

0.6

Age 65+ per working age

Age 0-14 per working Age

Working Age Persons per Capita

Workers per Capita (right hand scale)

Fertility, Female Labor Force Participation, and the Demographic Dividend 20

Population Forecast: Low Fertility Scenario

0

10

20

30

40

50

60

1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Pop

ulat

ion,

Milli

ons

Actual Population

Simulated Population

Fertility, Female Labor Force Participation, and the Demographic Dividend 21

Actual versus Simulated Age Structure

0%

5%

10%

15%

20%

25%

0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+

Age Group

Population Share

Actual Age Structure 1960Simulated Age Structure 1960