An Analysis of Women's Fertility and Labor Supply: Implications for Family Policies

A drastic decline in fertility rates in Korea is accelerating the unprecedentedly rapid population ageing. This phenomenon calls into question what role the economic forces play in the decisions and which public policies can be effective. As population ageing induces a shortage of labor force that sustain the economic growth, this paper notes that stimulating women's labor supply as well as encouraging fertility is a very important policy goal in an ageing society. Having this in mind, I investigate the effectiveness of family policies that are frequently used in developed countries. For this purpose, I first analyze the dynamic decisions of fertility and labor supply in a lifecycle framework, where time costs associated with children, time and goods investment in children, and uncertainties in earnings are important determinants of women's decisions. Based on the model, I then conduct policy experiments which evaluate the effects of policies including child allowances, conditional childcare subsidies, pronatal income tax, and maternal leaves. The findings show that providing benefits conditional on or through labor market activities are more effective than the provision of unconditional transfer in encouraging fertility without reducing labor supply of women.