PLAYING THE FERTILITY GAME AT WORK: AN EQUILIBRIUM MODEL OF PEER EFFECTS

• Date: 01 August 2016
• Author: Marianne Simonsen,Amalia R. Miller,Federico Ciliberto,Helena Skyt Nielsen
• DOI: http://doi.org/10.1111/iere.12177
• Published date: 01 August 2016

INTERNATIONAL ECONOMIC REVIEW

Vol. 57, No. 3, August 2016

PLAYING THE FERTILITY GAME AT WORK: AN EQUILIBRIUM MODEL

OF PEER EFFECTS∗

BYFEDERICO CILIBERTO,AMALIA R. MILLER,HELENA SKYT NIELSEN,

AND MARIANNE SIMONSEN1

University of Virginia, U.S.A.;University of Virginia, U.S.A.; Aarhus University, Denmark;

Aarhus University, Denmark

We study workplace peer effects in fertility decisions using a game theory model of strategic interactions among

coworkers that allows for multiple equilibria. Using register-based data on fertile-aged women working in medium-

sized establishments in Denmark, we uncover negative average peer effects. Allowing for heterogeneous effects by

worker type, we find that positive effects dominate across worker types defined by age or education. Negative effects

dominate within age groups and among low-education types. Policy simulations show that these estimated effects make

the distribution of where women work an important consideration, beyond simply if they work, in predicting population

fertility.

1. INTRODUCTION

The demographic transition to lower fertility rates may have been a catalyst for sustained

economic growth in previous centuries (Galor, 2005), but subreplacement fertility rates are now

a major policy concern in much of the industrialized world. Fertility decisions affect the size

and composition of the population. Reduced or delayed childbearing in the present leads to

population aging and higher ratios of retired to working populations. Hence, very low fertility

rates present challenges for the financing of public and private pension schemes (Borsch-Supan,

2000; Blake and Mayhew, 2006), for redistribution under the welfare state (Rangel, 2003),

and for overall economic growth (Lindh and Malmberg, 1999). Governments in Europe and

elsewhere have sought to increase the size of the workforce by enacting policies that encourage

fertility (through regulation or public spending; Grant et al., 2004; Mumford, 2007) or that

encourage women to enter the paid labor market. Because female labor market participation

is generally associated with lower fertility, these two policies may be in conflict.

This article studies peer effects in the fertility decisions of working women. Measuring work-

place peer effects in fertility can improve our understanding of how female labor market par-

ticipation affects population fertility rates. If peer effects are important, and either positive or

negative, their presence implies that a new workplace factor should be introduced into fertility

models: where women work may matter as much as if they work. In addition to their direct

∗Manuscript received May 2014; revised March 2015.

1We thank Steve Durlauf, Leora Friedberg, Bryan Graham, Ed Olsen, John Pepper, and participants at the AEA

meetings, CIREQ Applied Economics Conference on Fertility and Child Development, Economic Demography Work-

shop at the Population Association of America meetings, Nordic Summer Institute, Aarhus University, Mount Holyoke

College, Rice University, University of Houston, and University of Oklahoma for insightful comments and suggestions.

We thank Søren Brøgger and Anders Tofthøj for excellent research assistance. This research was supported by the

NIH National Institute of Child Health and Human Development (1R03HD061514), the Dean of the College of Arts

and Sciences and the Vice President for Research and Graduate Studies at the University of Virginia, the Villum

Foundation, and the Danish Research Council (275-09-0020). Part of this work was completed while Miller worked at

the RAND Corporation. The contents of this article are solely the responsibility of the authors and do not necessarily

represent the views of the NIH or other sponsors.

Please address correspondence to: Federico Ciliberto, Department of Economics, University of Virginia,

Charlottesville, VA 22904. E-mail: ciliberto@virginia.edu.

827

C

(2016) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social

and Economic Research Association

828 CILIBERTO ET AL.

effects, peer effects in fertility may be important for mediating the impact of policy and other

demographic changes on overall population fertility and fertility of different groups of women.

Previous studies have discussed how positive peer effects can amplify or dampen fertility re-

sponses to changes in the policy or economic environment (e.g., Kohler, 2001; Kravdal, 2002;

Bloom et al., 2008). An example of a dampening story is the argument in Moffitt (1998) and

Murray (1993) that social stigma (associated with out-of-wedlock childbearing) reduced the

short-term fertility responses to changes in fertility incentives in U.S. welfare policies. An am-

plification story is in Montgomery and Casterline (1998), who argue that multiplier effects from

social learning and social influences hastened demographic transitions, through the diffusion of

contraceptive technologies.

Following the economics literature on fertility, we model childbearing as a rational choice,

responsive to financial incentives (Becker, 1960; Willis, 1973). However, unlike most of that

literature, which studies decisions at the level of individual women or couples,2we explore

peer effects in an equilibrium framework for peer groups of women working at the same

establishment. This emphasis aligns with the shift in economic demography to consider social

influences on fertility decisions. Studies have found evidence of peer effects using geographic

areas or neighborhoods (Crane, 1991; South and Baumer, 2000; Bloom et al., 2008), schools

(Evans et al., 1992), ethnic or religious groups (Manski and Mayshar, 2003), families (Kuziemko,

2006), and networks of friends (Behrman et al., 2002) as their primary social unit. A common

feature of these studies is their focus on social or informational factors leading to positive peer

effects. In contrast, this article studies interactions in fertility decisions among female coworkers

at the same physical work establishment that could be positive or negative.

One motivation for studying the workplace is precisely this variation. Unlike the usual social

effects that tend to increase similarity among friends or neighbors, the workplace setting contains

a complex mix of social and economic interactions that can produce positive or negative peer

effects in fertility. A second motivation is the dramatic increase over the last half-century in

the share of prime-age women working for pay, which has made the workplace an increasingly

important setting in which to study women’s fertility decisions. Third, the workplace can be

used to define peer groups of individuals who work for the same organization at the same

physical location and are potentially exposed to one another for several hours a day. Although

workplace peer groups are primarily structured around economic production goals, a new set

of studies has found evidence of peer effects at the workplace involving various behaviors other

than fertility, including productivity (Mas and Moretti, 2009; Bandiera et al., 2010), charitable

contributions (Carman, 2003), retirement savings (Duflo and Saez, 2003), and paternity-leave

taking (Dahl et al., 2014).3

We model the interactions at a workplace among women deciding whether to have children

as a complete information, simultaneous, static, discrete choice (“entry”) game and solve for

the Nash equilibrium outcomes.4In an equilibrium of the game, each woman is maximizing

her utility by having a child or not, taking the actions of coworkers as given; this implies an

inequality condition for each woman. The full set of inequality conditions at each workplace is

2See Hotz et al. (1997) for a survey of the literature on the economics of fertility in developed countries. More

recent studies have revisited the relationship between household income and demand for children (e.g., Lovenheim

and Mumford, 2013) and the impact of redistributive policy on fertility (e.g., Kearney, 2004).

3Dahl et al. (2014) find peer effects within both families and workplaces.

4The assumption of complete information has the attractive features of capturing the reality that agents in the

model likely have information about the payoff functions of their coworkers that is not available to econometricians

and allows us to avoid the possibility of ex post regret that could arise with incomplete information. In a static game

of incomplete information, agents may experience ex post regret, which we do not think as plausible in a long-run

equilibrium. Also, the challenge of multiple equilibria that we address here would not necessarily be avoided in a static

game with incomplete information (e.g., Berry and Tamer, 2006; Berry and Reiss, 2007). Finally, Grieco (2014) rejects

a model where agents only have incomplete information, whereas he cannot reject a model where agents have only

complete information. This is because, as Grieco (2014, p. 312) explains, “the model is at the height of its flexibility

under the complete information assumption—multiple equilibria is most common and different equilibria allow the

widest range of equilibrium entry probabilities.”