Social Institutions and Low Birth Rates

The paper presented in this Mannheim Applied Seminar documents three cross-sectional stylized facts on labor supply and family formation. First, female labor force participation (FLFP) and total fertility rates (TFRs) are much lower in Eastern societies compared to Western economies. Second, labor hours and the gender pay gap are much higher in the East than in the West. Third, parents invest more on schooling in Eastern societies compared to Western economies. To account for these features, the authors develop and estimate a rich heterogeneous-agent model with endogenous marriage, fertility, labor supply, and time and money investment in children. Estimates using data from South Korea and the United States highlight the importance of gender norms and long work hours practices in driving down FLFP while child quality mores drive down fertility in South Korea. Their results suggest that a multi-pronged policy approach or reductions in the gender pay gap may help boost both FLFP and fertility in East Asia.