Child policy solutions for the unemployment problem

Unemployment and population ageing are probably two of the most important concerns in developed countries. Since reforming labour markets is high on the political agenda, a theoretical knowledge of the possible long-run interaction between unemployment and the childcare system may be highly valuable. Applying a fairly standard OLG model with endogenous fertility and minimum wages, we show that a child tax (rather than the more conventional child subsidy) can be used as an instrument (1) to promote population growth and (2) to reduce unemployment and, in particular, to restore the full employment equilibrium.