Timing of childbirth, capital accumulation, and economic welfare

This paper examines the effect of the timing of childbirth on capital accumulation and welfare in a simple overlapping generations model, where each agent lives for four periods and works for two periods. We show that delayed childbearing not only reduces population, but also generates fluctuations in the age composition of workers in the labour force. This causes the aggregate saving rate to fluctuate, which leads to cycles in the capital--labour ratio. When all agents delay childbearing, we analytically show that both the capital--labour ratio and the welfare of all agents can fall in the long run, despite the population decline. When a fraction of agents delay childbearing, it has differential welfare effects on agents depending on their positions in the demographic cycles. The effects of lower lifetime fertility and technological progress are also examined. Copyright 2013 Oxford University Press 2012 All rights reserved, Oxford University Press.