Labor Market Institutions and Fertility

Among high-income countries, fertility rates differ significantly, with some experiencing total fertility rates as low as 1 to 1.3 children per woman. However, the reasons behind low fertility rates are not well understood. We show that uncertainty created by dual labor markets, the coexistence of temporary and open-ended contracts, and the inflexibility of work schedules are crucial to understanding low fertility. Using rich administrative data from the Spanish Social Security records, we document that temporary contracts are associated with a lower probability of first birth. With Time Use data, we also show that women with children are less likely to work in jobs with split-shift schedules. Such jobs have a long break in the middle of the day, and present a concrete example of inflexible work arrangements and fixed time cost of work. We then build a life-cycle model in which married women decide whether to work, how many children to have, and when to have them. Reforms that eliminate duality or split-shift schedules increase women’s labor force participation and reduce the employment gap between mothers and non-mothers. They also increase fertility for women who are employed. Reforming these labor market institutions and providing childcare subsidies would increase the completed fertility of married women to 1.8 children.