Fertility Effects of Aggregate Unemployment

Christian SchmittSocio-Economic Panel Study (SOEP)

2006 Conference of the European Panel Users Network

Universidad Pompeu Fabra de Barcelona, 8-9 May 2006

Overview

(1) Low Fertility in Europe - Brief Introduction

(2) Research Topic and Previous Findings

(3) Theoretical Foundations

(4) European Labour Markets during the 90ies

(5) Data and Methods

(6) Findings and Conclusion

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Background I

– Below replacement levels of fertility among most western European countries

Source: European Communities 2003

1,47

1,981,74 1,73 1,7 1,69 1,65 1,63 1,57

1,42 1,29 1,29 1,29 1,25 1,24

1,9

0

1

2

EU IRL F DK FIN L NL B UK S P D EL A E I

Figure 1: Total fertility rate (TRF) in EU countries 2001

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Background II

Potential causes:1) Increasing female labour-force participation2) Acquisition of economic resources prior to family

formation (also linked to labour-force participation)• Result: Strong integration into the labour force vs.

time needed for family formation.• Time as a scarce resource in a situational as well as in a

Life-course related sense

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Background III

Difficulties in combining career and family roles, especially for women

Conclusion: High opportunity costs of parenthood

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Research Topic

• Second part of a research project dealing with fertility effects of unemployment

• Part one: Effects of inidivdual unemployment • Findings in brief (lowered opportunity costs vs. reduced

economic backing

• Part two: Effects of aggregate unemployment

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Research Topic and Previous Findings

• Unemployment rate as economic predictor of future labour market opportunities & prospects

• Previous research based mainly on macro level models of economic indicators affecting fertilty

Unemployment Rate, Average earnings, GNP as predictor of TFR

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Research Topic and Previous Findings

Disagreement in previous reserach: Pro-cyclical effects:• Wilkinson 1973, Macunovich&Easterlin (1988), Macunovich

(1995), etc.

Vs. Countercyclical effects:• Butz & Ward (1979) (=> Relation to female earnings and

reference to the New Home Economics)

• Major Problem: Derivations of aggregate data without understanding of the underlying effects and correlations on the micro level

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Theoretical assumptions I

Theory of Action

• Maximisation of the utility under limited resources

• Given constraints and preferences• Gender specific structuring of resources and

constraints New home Economics (esp. Becker 1981, 1993)• Gender specific division of labour between

household and market work with the woman specialising in household work in most cases

Brown Bag

Theoretical assumptions II

Rational Choice and the Life-Course-Perspective

• Preferences and expected utility are affected by life course transitions and trajectories

Social Change affecting the Life-Course: Educational Expansion and the role of human capital investments

Example: women may reject the role of the sole homemaker and work full time in order to avoid human capital depreciation

Brown Bag

Institutions as Tie between Life-course an Rational Choice

• Welfare-state institutions structuring the life-course (Mayer 1990)

• Institutions structuring (expected) utility• Imminent rationality vs. life-course dependent rationality Rational-Choice core (example: discount assumption) vs. life

course rationality Family formation as rational choice, given a causal

development of the life course (appearing as irrationality)

Theoretical assumptions III

Brown Bag

High unemployment rate: Increase in labour market related uncertainties, decrease or

staqnation in earnings potentialCoping strategies for this situation? 1)Improvement of labour market position to prepare for expected risks delay in family formation2) Family formation as alternative pathway temporary labour market exit as coping strategy Gender specific differentiation (childbearing and childbirth

affecting “female” time resources only) and Cultural differentiation (different childcare cultures [family vs.

public care] and different supply of childcare institutions; different family support of social policies)

Theoretical assumptions IV

Brown Bag

Individual fertility decision structured by (aggregate level) information, predicting economic perspectives

Three major questions:1) Which information is used by the individual ?2) How does the information (of high unemployment, e.g.)

affect individual decisions? Decision making under uncertainty and Effects of Risk Aversion

3) How does the individual interprete the information Different threat potential of high unemployment rates in partial

labour markets

Theoretical assumptions III

Brown Bag

Welfare state typology as frame of reference

• Cross national comparison based on Esping Andersen‘s typology of welfare regimes (1990)

• Countries included in the analysis:

• United Kingdom (anglo-american liberal)• Germany (continental conservative)• France (continental conservative)• Finland (scandinavian social-democratic)

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Evidence from the macro level

Source: OECD (2004)Note: All values in percentage points

Figure 2: Unemployment Rate in EU Countries

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0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

EU15 D F Fin UK

Evidence from the macro level

Figure 3: Gender Unemployment Gap

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-6,0

-4,0

-2,0

0,0

2,0

4,0

6,0

1993 1995 1997 1999 2001

EU15 D F Fin UK

Source: OECD (2004)Note: All values in percentage points

Evidence from the macro level

Figure 4: Total Fertility Rate

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0,0

0,5

1,0

1,5

2,0

1993 1994 1995 1996 1997 1998 1999 2000 2001

Germany France Finland UK

Source: Eurostat (2006)Note: All values refer to TFR-Indicator

Social policy settings I – Family related benefits

• France and Finland: Encouragement of the combination of family and occupational attainment(paternity leave, extensive childcare system)

• Germany: Encouragement of women to retreat from the labour market (lasting childrearing leave, low coverage of childcare institutions)

• UK: Dual pressure: Limited financial aid and high cost of widely privatised childcare system

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Social policy settings II – Unemployment related benefits

Unemployment insurance:• Finland: Tolerant rules of entitlement, high payments,

increased payment for parents, 23 months• Germany: High payments, increased payments for

parents, 4 to 32 months• France: Payment 4 to 60 months, below 60% of last

net income• UK: Low flat rate for 6 monthsTransfers are ceased in the UK after 6 months,

in D, Fin and F subsequent unemployment assistance

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Design of the multivariate analysis

• Application of event history methods• Piecewise-constant exponential hazard model

• Time variant (measured in months) and invariant covariates:

h(t) = exp(t) exp(x + zt)

• Process time starts with 16th year of life (month 192, population at risk: 16-44 years of age)

Brown Bag

Data and Methodology I

• Consideration of Transitions to first birth is considered (family formation)

• Month of fertilty decision as relevant event (to account for a causality)

• Utilisation of ECHP-data from 1994 to 2001

• Separate estimates by country and gender

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0.00

0.25

0.75

1.00

Sur

viva

l

10 15 20 25 30 35 40 45Age in years

Fran ce GermanyFinland United Kingdom

Data and Methodology II

EPUNet 2006Source: ECHP 1994 - 2001, own calculations n = 5.668

Figure 5: Transition to first-parenthood – Kaplan-Meier survival estimates

0.00

0.25

0.75

1.00

Sur

viva

l

10 15 20 25 30 35 40 45Age in years

Fran ce GermanyFinland United Kingdom

Data and Methodology IIFigure 5: Transition to first-parenthood – Kaplan-Meier survival estimates

EPUNet 2006Source: ECHP 1994 - 2001, own calculations n = 7.341

0.00

0.25

0.75

1.00

Sur

viva

l

10 15 20 25 30 35 40 45Age in years

France GermanyFinla nd United Kingdom

Data and Methodology II

EPUNet 2006Source: ECHP 1994 - 2001, own calculations n = 9.865

Figure 5: Transition to first-parenthood – Kaplan-Meier survival estimates

Data and Methodology II

Aggregate Information on:

• GNP, • Annual unemployment (NUTS0)• Regional annual unemployment rate (NUTS1)• Gender specific unemployment rate (NUTS1)• Age specific unemployment rate (NUTS1)• Individual activity status (incl. individual UE and duration)• Information on previous long-term unemployment• Individual and partners income and benefits and transfers• Information on education, relationship, housing, origin, etc.

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France Finland Germany United Kingdom Aggregate Indicator Male Female Male Female Male Female Male Female

GNP 1.019 0.927* 1.047 1.056 0.865*** 0.891*** 0.933 1.020 Hazard Ratio

Nuts0 0.910* 0.993 1.124*** 1.166*** 1.013 1.004 1.035 1.014

Nuts1 0.976 1.000 1.030 1.071*** 0.961* 0.945*** 0.977 0.990

Nuts1 - by Gender

0.969 0.999 1.032 1.065*** 0.949** 0.965** 0.982 0.976

Nuts1 - by Age

0.962*** 0.988* 1.018 1.016 0.962** 0.958*** 0.971** 0.995

Unemployment Rate

Findings I Aggregate Indicators (no Covariates)

p < 0.10 (*), p < 0.05 (**) and p < 0.01 (***)Source: ECHP 1994-2001, own calculationsEPUNet 2006

France Finland Germany United Kingdom Aggregate Indicator Male Female Male Female Male Female Male Female

GNP 0.991 0.904** 1.083 1.079 0.869*** 0.901*** 0.933 0.988 Hazard Ratio

Nuts0 0.935 1.038 1.149*** 1.151*** 1.028 1.044 1.042 0.994

Nuts1 1.009 1.020 1.065*** 1.084*** 0.949** 0.958** 0.991 0.997

Nuts1 - by Gender

1.008 1.016 1.063*** 1.079*** 0.937*** 0.977* 0.994 0.996

Nuts1 - by Age

0.983** 1.006 1.039** 1.028** 0.959** 0.970** 0.987 1.004

Unemployment Rate

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Findings I Aggregate Indicators (Full Model w.o. Partner)

p < 0.10 (*), p < 0.05 (**) and p < 0.01 (***)Source: ECHP 1994-2001, own calculations

France Finland Germany United Kingdom Aggregate Indicator Male Female Male Female Male Female Male Female

GNP 1.024 0.939 1.099 1.086 0.927** 0.941 0.970 1.025 Hazard Ratio

Nuts0 0.884** 0.983 1.091** 1.107*** 1.092 1.075 0.996 0.945

Nuts1 1.004 1.021 1.058** 1.071*** 0.978 0.985 0.989 0.995

Nuts1 - by Gender

1.003 1.017 1.056** 1.065** 0.974 0.990 0.990 0.998

Nuts1 - by Age

0.986* 1.006 1.037** 1.024** 0.976 0.991 0.993 1.008

Unemployment Rate

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Findings I Aggregate Indicators (Full Model with Partner)

p < 0.10 (*), p < 0.05 (**) and p < 0.01 (***)Source: ECHP 1994-2001, own calculations

Conclusion I

• Effects for partial labour markets: No significant effects for Persons in labour market

segments with higher and lower unemployment risks:

In detail: No significant effects for managers and senior officials, professionals or for

service and sales-persons and machine operators

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Conclusion II

• Widely negative fertility effects of high unemployment rates

• Special case for Finland• Gender specific uniform effect direction• No converse effect direction for GNP and

Unemployment rates!• Especially clear effects for detailed indicators =>

Individuals use differentiated information for family formation decisions

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Conclusion III

France: • No or slightly negative effects (especially if

controlling for youth unemployment) Possibly related to the cultural traditions of work-family

combination and the extensive public support for families

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Conclusion IV

Finland: • Positive effects of high unemployment rates Special case of extensively high unemployment

rates in Finland in the early 90ies Possible interpretation: Family formation as a

focus on an alternative life goal (instead of labour market integration)

Backing by an extensive public supportEPUNet 2006

Conclusion V

Germany: • Diminished likelihood of family formation under

high unemployment Work-family conflicts especially dominant in

Germany (breadwinner-homemaker model) Sequential model of family formation as common

strategy (continued delay of family formation) High level of social security shaping risk-averse

behaviourEPUNet 2006

Conclusion VI

United Kingdom: • No significant effects of aggregate economic

indicators Deregulated labour market with a high level of

entry and exit rates Possibility: Labour market related risks are

common and thus do not affect childbirth decisns. Low level of social security, that diminishes

subjective risk perceptionEPUNet 2006