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Social Security, Differential Fertility, and the Dynamics of the Earnings Distribution

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  • Zhao Kai

    (University of Western Ontario)

Abstract

Economists and demographers have long argued that fertility differs by income (differential fertility), and that social security creates incentives for people to rear fewer children. Does the effect of social security on fertility differ by income? Does social security further affect the dynamics of the earnings distribution through its differential effects on fertility? We answer these questions in a three-period OLG model with heterogeneous agents and endogenous fertility. We find that given its redistributional property, social security reduces fertility of the poor proportionally more than it reduces fertility of the rich. Assuming that earning ability is transmitted from parents to children, the differential effects of social security on fertility can have a significant impact on the dynamics of the earnings distribution: a relatively lower fertility rate among the poor can lead to a new earnings distribution with a smaller portion of poor people and a higher average earnings level. With reasonable parameter values, our numerical exercise shows that the effects of social security on differential fertility and the dynamics of the earnings distribution are quantitatively important.

Suggested Citation

  • Zhao Kai, 2011. "Social Security, Differential Fertility, and the Dynamics of the Earnings Distribution," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-31, August.
    • Handle: RePEc:bpj:bejmac:v:11:y:2011:i:1:n:26
    DOI: 10.2202/1935-1690.2042
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    2. ELOUNDOU-ENYEGUE Parfait & TENIKUE Michel & KANDIWA Vongai M., 2013. "Population Contributions to Global Income Inequality: A Fuller Account," LISER Working Paper Series 2013-28, Luxembourg Institute of Socio-Economic Research (LISER).
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    4. Daishin Yasui, 2014. "A Theory of the Cross-Sectional Fertility Differential: Jobs f Heterogeneity Approach," Discussion Papers 1409, Graduate School of Economics, Kobe University.
    5. Kai(Jackie) Zhao, 2009. "War Debt and the Baby Boom," 2009 Meeting Papers 856, Society for Economic Dynamics.
    6. Larry E. Jones & Alice Schoonbroodt & Michèle Tertilt, 2010. "Fertility Theories: Can They Explain the Negative Fertility-Income Relationship?," NBER Chapters, in: Demography and the Economy, pages 43-100, National Bureau of Economic Research, Inc.
    7. Lee, Hyun & Zhao, Kai & Zou, Fei, 2022. "Does the early retirement policy really benefit women?," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 330-345.
    8. Alice Schoonbroodt & Michèle Tertilt, 2010. "Who Owns Children and Does it Matter?," NBER Working Papers 15663, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    social security; differential fertility; earnings distribution; growth;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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