EXHIBIT 4.4
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alternative of having children and to engage in less expensive activities that do not impinge as much on their earning capacity. The income effect, on the other hand, says that wives with a high earning capacity can contribute more to family income, and this will enable the family to spend more on all commodities, implying greater expenditures on children if children are “normal goods.” Thus the income and substitution effects of a change in the wife’s earning capacity have opposing effects on desired family size.
Price of Related Goods A rise in the price of complementary goods (e.g., medical expenses, daycare, education) would tend to reduce our desired number of children. Con- versely, a fall in their price, perhaps from public subsidies, could encourage larger family sizes. In most cases, the cost of any one of these related commodities is probably not large enough to have any appreciable effect on family size. However, dramatic changes in the private cost of some of these items, such as free university tuition or universally free daycare, could have an impact, as could any trend in the overall extent of government support for medical care, family allowances, maternity leave, education, or daycare.
Tastes and Preferences Economists tend to regard tastes and preferences as exog- enously given from outside the economic system. In the area of family formation, our tastes and preferences have dramatically changed, related to our ideas on religion, family planning, and the women’s liberation movement in general. These factors have all changed over time in a fashion that would encourage smaller family sizes.
Some would argue that these changes were not really exogenous to the economic system, but rather were a result of some of the more fundamental economic changes. For example, such factors as improved job opportunities for females may have made women’s liberation more necessary to ensure more equal employment opportunities. The dramatic increase in the number of women working outside the home may have changed attitudes toward women, their role in society, and the nature of the family. Cause and effect works both ways: tastes and preferences both shape, and are shaped, by the economic system.
Education also has an important bearing on tastes and preferences. Not only does it raise the income forgone from raising children, but increased education may also widen our hori- zon for other goods (travel, entertainment outside the home), enable family planning, and encourage self-fulfillment through means other than having children.
Technology The term technology is often used by economists as a general rubric to describe the general technological and environmental factors that influence our economic decisions. In the area of fertility and family formation, birth control knowledge and contracep- tive devices have had an important impact on the number of children, primarily by equilibrat- ing the actual with the desired number of children. Medical advances with vasectomies and tubal ligation can have a similar impact. The reduction in infant mortality that has occurred over time should also reduce the number of births since, in times of high infant mortality, it was often necessary to have large families simply to have a few children survive to adult age.
Most of the technological advances discussed so far are ones that would encourage or enable smaller families. Some, such as reduced danger and discomforts during pregnancy, and advances in fertility drugs and operations, work in the opposite direction to encourage or enable more childbearing. These have been especially important for women who have post- poned childbearing to later in their life. Other advances, such as processed food and dispos- able diapers, have made care for children easier.
Empirical Results
The empirical evidence on fertility behaviour is confusing to interpret because of the dif- ficulty of holding other factors constant when observing actual behaviour. For example, it is difficult to isolate the effect of family income, independent of the effect of the wife’s educa- tion, because highly educated wives tend to marry husbands with high incomes. If we observe
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CHAPTER 4: Labour Supply over the Life Cycle
Out of concern for excessive population growth, in 1979 China adopted a “one-child policy” designed to reduce fertility, ideally, to one child per family. The policy was enforced by a variety of mechanisms, including both rewards for complying families and fines for families having too many children. It was applied most strictly in cities and more unevenly in the countryside. By the early 1990s, the total fertility rate (the number of children ever born to a woman) had declined from three to fewer than two children per woman, and the sex ratio had tilted decidedly in favour of boys.
How much credit or blame should be given to this “central planning” of fertility? As usual, it is difficult to tell. China’s pattern of demographic transition—that is, the reduc- tion in births combined with an increase in life expectancy—looks very much like that of other East Asian countries as they have gone through the process of economic development. As economies develop, and the returns to women’s work and education improve, the increase in women’s opportunity cost of time naturally leads to a reduction in fertility. Furthermore, as incomes rise, parents substitute toward the quality of their children’s investments (like education) and away from quantity. Several researchers, such as Shultz and Zeng (1999), highlight the importance of women’s labour mar- ket opportunities in their fertility decisions, helping to explain why fertility would have declined for purely economic reasons. However, this does not mean that the policy had no independent effect. Shultz and Zeng (1995) and McElroy and Yang (2000) show that the economic incentives associated with the one-child policy also appear to have influenced the decision of how many children a couple has. Given the dramatic eco- nomic and social changes that have occurred in China over the past 20 years, disen- tangling the impact of fertility policy from economic development will continue to pose a challenge for empirical researchers.