LABOR MARKET INSTITUTIONS AND FERTILITY

• Published date: 01 August 2024
• Author: Nezih Guner,Ezgi Kaya,Virginia Sánchez‐Marcos
• Date: 01 August 2024
• DOI: http://doi.org/10.1111/iere.12708

INTERNATIONALECONOMIC REVIEW

Vol. 65, No. 3, August 2024 DOI: 10.1111/iere.12708

LABOR MARKET INSTITUTIONS AND FERTILITY∗

By Nezih Guner, Ezgi Kaya, and Virginia Sánchez-Marcos

CEMFI, Calle Casado de Alisal 5, Madrid 28014, Spain; Cardiff Business School, Cardiff

University, Aberconway Building, Colum Drive, Cardiff CF10 3EU, U.K.; Universidad de

Cantabria, Edificio delas Facultades de Derecho y Ciencias Económicas y Empresariales, Avda.

de los Castros 56, Santander 39005, Spain

Some high-income countries have total fertility rates as low as one child. Using Spanish administrative data,

we document that temporary contracts correlate with lower first birth rates. Also, women with children are

less likely to work split-shift jobs with long breaks in the middle of the day. Webuild a life-cycle model where

women decide on labor supply and fertility. We show that reforms eliminating duality or split-shift jobs raise

women’s labor participation, narrow the employment gap between mothers and nonmothers, and boost fertil-

ity for working women. These reforms, together with childcare subsidies,increase married women’s fertility to

1.8 children.

1. introduction

The total fertility rate (TFR) has been falling everywhere in the world. It is 1.8 in the US,

1.6 in Germany, and 1.4 in Japan, well below the replacement rate of 2.1 children per woman.1

The TFR in some European countries, such as Greece, Italy, Portugal, and Spain, is even

lower, around 1.3 children, which is what demographers call the lowest-low fertility (Kohler

et al., 2002). Yet, the desired number of children by females in these countries remains about

2, much higher than the observed TFR.

Population aging, low fertility coupled with high life expectancy, have been associated with

a host of economic woes: low interest rates, low economic growth, and growing deficits of so-

cial security systems around the world (see, among others, Krueger and Ludwig, 2007, Aksoy

et al., 2019, and Jones, 2022). These concerns make understanding why women choose such

low fertility rates essential.

In this article, we study how labor market inflexibility and uncertainty affect fertility deci-

sions. Growing evidence from surveys and experiments suggests that women prefer greater

∗Manuscript received November 2021; revised July 2023.

A previous version of this article was circulated with the title “Labor Market Frictions and Lowest Low Fertil-

ity.” Guner acknowledges financial support from RecerCaixa, and from the Spanish Ministry of Economy and Com-

petitiveness, through the Severo Ochoa Programme for Centres of Excellence in R&D (CEX2019-000915-S). Kaya

acknowledges financial support from the Spanish Ministry of Science and Innovation through grant “Consolidated

Group-C” ECO2008-04756 and FEDER. Sánchez-Marcos acknowledges financial support from the Spanish Govern-

ment under Grant No. PID2019-108087RB-I00 and from Fundación Ramon Areces. We thank our discussant, Pe-

dro Mira, at the 2018 COSME Gender Economics Workshop in Madrid, and seminar and workshop participants at

Bank of Spain, Cardiff Business School, Collegio Carlo Alberto, Stockholm School of Economics, U. de Alicante, U.

Autonoma de Barcelona, U. of Bristol, U. of Edinburgh, U. Pablo de Olavide, U. de Zaragoza, 2017 SED Meetings

in Edinburgh, 2018 EAE-ESEM Meetings in Cologne, 2019 Workshop in Public Policy Design: Family, Gender Eco-

nomics at the Universitat de Girona, 2019 Meeting of the Italian Economic Association in Palermo, 2020 Income Dy-

namics and the Family Workshopin Barcelona, and 2021 GW4 Career Breaks & Gender Equality Workshop. Please

address correspondence to: Nezih Guner, CEMFI. E-mail: nezih.guner@cemfi.es

1See: OECD Family Database,Tables SF2.1.A, SF2.3.B, SF2.2.A, http://www.oecd.org/els/family/database.htm.

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© 2024 the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social

and Economic Research Association.

1552 guner, kaya, and sánchez-marcos

work flexibility and job stability.2Goldin (2014) emphasizes that labor market inflexibility,

measured as requirements to work long and particular hours, reduces the female labor sup-

ply and increases the gender wage gap, particularly for skilled occupations. One way women

can cope with inflexibility in the labor market is to have fewer children. Across the OECD

countries, higher flexibility (ability to adjust working hours) is associated with higher fertility

(Figure B1 in Online Appendix B).

Another reason for low fertility is economic uncertainty and women’s inability to start and

establish stable labor market career delays and lower fertility. High unemployment is asso-

ciated with low fertility (Ahn and Mira, 2001; Adsera, 2011; Currie and Schwandt, 2014),

and higher gender gaps in employment and unemployment are associated with lower fertility

across countries (Figure B2 in Online Appendix B). Job displacements reduce fertility (Del

Bono et al., 2012, 2015), and the effect is more substantial for women in skilled occupations.3

In many European countries, dual labor markets contribute significantly to economic uncer-

tainty for women in their childbearing years. In a dual labor market, young workers hold tem-

porary jobs that can last up to a couple of years and then move to another temporary position

until they settle on an open-ended (permanent) contract. Fertility and the fraction of women

who work with a temporary contract are negatively correlated across OECD countries (Figure

B3 in Online Appendix B), and several empirical studies show that temporary jobs are nega-

tively correlated with fertility.4

Our analysis is based on Spain, an ideal case to understand the effects of labor market in-

stitutions on fertility and labor market outcomes. Even among high-income countries with low

fertility rates, Spain stands out as the country with the highest incidence of childlessness and

the lowest share of women with two or more children (Figure B4 in Online Appendix B). The

gender gaps in employment and unemployment rates are also high in Spain. For ages 25 to

54, the gender gap in the employment-to-population ratio was 12.2 percentage points in 2018,

whereas the gap was 9.1, 8.4, and 4.6 percentage points in France, Germany, and Sweden, re-

spectively. For the same age group, women’s unemployment rate was 3.5 percentage points

higher in 2018, whereas in France, Germany, and Sweden, the gender unemployment gap was

either zero or negative, that is, women had a lower unemployment rate. In terms of institu-

tions, Spain presents a concrete example of inflexible work arrangements and fixed time cost

of work for women. This is due to the fact that the organization of the workday is unusual

in Spain. Many jobs have long lunch breaks that create split-shift work schedules. Figure 1

shows the fraction of employees at work during different times of the day in Norway, Spain,

and the UK. By 6.00 pm, less than 20% of workers are at work in Norway and the UK. In con-

trast, 50% of them are still at work in Spain. The split-shift schedules make combining work

and childcare difficult. Available evidence suggests that women are constrained in their work

schedules, and there are no compensating wage differentials for having a split-shift schedule

(Amuedo-Dorantes and De la Rica, 2009).

Furthermore, Spain has one of the highest fraction of workers with temporary contracts in

Europe. In 2018, about 28% of women worked with a temporary contract. However, the in-

cidence is much higher among the young; 72% of women between 15 and 24 worked with

a temporary contract in 2018.5The temporary contracts were introduced in 1984. They have

2Evidence from surveys and experiments suggests that women have a stronger preference for greater work flexibil-

ity and job stability (Mas and Pallais, 2017; Wiswall and Zafar, 2018). Ciasullo and Uccioli (2023) show that regular

work schedules are associated with a lower child penalty on women’s earnings. Commuting costs also matter signifi-

cantly for women’s labor force participation and the types of jobs they accept (see Petrongolo and Ronchi, 2020, for

the UK and Farre et al., 2020, for the US).

3Wars, which are marked by heightened economic uncertainty, also lead to the postponement of fertility (Chabé-

Ferret and Gobbi, 2018; Vandenbcroucke, 2014). During the last two recessions in the US, fertility started to fall sev-

eral quarters before economic downturns (Buckles et al., 2020; Coskun and Dalgic, 2024).

4See De la Rica and Iza (2005) for Spain, Auer and Danzer (2016) for Germany, Landaud (2021) for France, and

Lopes (2019) for Portugal.

5See: OECD Labor Force Statistics,https://stats.oecd.org/Index.aspx?DataSetCode=TEMP_I

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United Kingdom Spain Norway

Notes: The sample is restricted to 25- to 54-year-old employees who filled the diary on an ordinary working day.The

figure shows the fraction who report employment as the main activity (main or second job and activities related to

employment) at different hours of the day. Thevertical lines mark 9 am and 6 pm.

Source: Harmonized European Time Use Surveys (HETUS) database, www.tus.scb.se (accessed on 8/11/2018).

Figure 1

fraction of people at work

a much lower firing cost than permanent contracts and can last up to two to four years.6In

practice, temporary contracts are often much shorter, and the conversion rate of temporary

contracts to permanent ones is very low, about 6% per year. As a result, a significant fraction

of the labor force faces very uncertain labor market prospects as they move from one tempo-

rary job to the next. There is the potential that these institutions can account simultaneously

for the lower fertility and the worse female labor market outcomes.

We first use administrative data from the Spanish Social Security Records to study the rela-

tionship between temporary contracts and fertility. For women with a college degree, employ-

ment with a temporary contract reduces the odds of having a first birth by 28%, whereas for

women without a college degree, by 25%. The impact of temporary contracts on fertility accu-

mulates over the life cycle. Women who spend at least 50% of their working life with a tem-

porary contract have fewer children at age 40 and are more likely to be childless, compared

to women who spend less than 50% of their working life with a temporary contract. Women

with higher exposure to temporary contracts also have lower earnings at age 40. Using data

from the Spanish Time Use Survey (STUS), we also show that women with children are less

likely to work in jobs with split-shift schedules compared to men or women without children.

For college-graduate women, the children reduce the odds of working with a split-shift job by

about 57%. The figure for noncollege graduates is about 47%.

Next, we build a life-cycle model in which married women decide whether or not to partic-

ipate in the labor market, how much to consume, how many children to have, and when to

have them. Having a child is costly, both in terms of time and money. Married women are ex-

ante heterogeneous along several dimensions. They differ in educational attainment (they can

be college graduates or have less than a college degree), their abilities, and their husbands’

abilities. There are also two sources of unobserved heterogeneity. First, women differ in their

6Workers with permanent contracts are entitled to severance pay of 20 days’ wages per year of service (up to a

maximum of 12 months’ wages) in fair dismissals and 45 days’ (up to a maximum of 42 months’) wages in unfair dis-

missals. Firing costs for temporary contracts were introduced in 2001. It was eight days’ wages per year of service,but

has gradually increased up to 12 days.