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Does Economic Uncertainty Affect the Decision to Bear Children? Evidence from East and West Germany

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  • Bhaumik, Sumon K.

    ()
    (University of Sheffield)

  • Nugent, Jeffrey B.

    ()
    (University of Southern California)

Abstract

Although economic agents routinely face various types of economic uncertainty, their effects are often unclear and hard to assess, in part due to the absence of suitable measures of uncertainty. Because of the numerous and very substantial institutional changes that people in the transition economies of Central and Eastern Europe experienced during the last two decades, these countries are excellent candidates for examining the effects of uncertainties on various kinds of behavior. During their periods of uncertainty, moreover, these countries have experienced sharply falling fertility rates. Some have argued that these two phenomena are linked but others have remained skeptical in view of the fact that the evidence is largely confined to the macro level. This paper demonstrates the existence of such a link at the micro level using two different types of uncertainty measures based on GSOEP data from Eastern (and for comparison purposes also Western) Germany for the years 1992-2002. The results suggest that employment uncertainty (but not financial uncertainty) was considerably greater in Eastern Germany during its transition than in Western Germany and had a highly nonlinear effect on the probability of a birth in any period. The result is rather robust to differences in specification and suggests that the higher employment uncertainty in East Germany in the transition could have contributed significantly to the sharp fall and unusually low level of its fertility. In view of the results, we argue that an options based theory is perhaps a richer analytical paradigm for a discussion of fertility decisions in a rapidly changing environment than the traditional Beckerian theory.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1746.

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Length: 29 pages
Date of creation: Sep 2005
Date of revision:
Publication status: published as 'Real Options and Demographic Decisions: Evidence from East and West Germany' in: Applied Economics, 2011, 43 (21), 2739 - 2749
Handle: RePEc:iza:izadps:dp1746

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Keywords: falling fertility; uncertainty; Germany;

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References

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  1. Lechner, Michael, 1997. "Eine empirische Analyse der Geburtenentwicklung in den neuen Bundesländern," Discussion Papers 551, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
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  11. Tomás Sobotka, 2004. "Is Lowest-Low Fertility in Europe Explained by the Postponement of Childbearing?," Population and Development Review, The Population Council, Inc., vol. 30(2), pages 195-220.
  12. Bhaumik, Sumon Kumar & Nugent, Jeffrey B, 1999. "Analysis of Food Demand in Peru: Implications for Food-Feed Competition," Review of Development Economics, Wiley Blackwell, vol. 3(3), pages 242-57, October.
  13. Angelika Tölke & Martin Diewald, 2003. "Insecurities in employment and occupational careers and their impact on the transition to fatherhood in Western Germany," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 9(3), pages 41-68, September.
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Cited by:
  1. Ariane Pailhé & Anne Solaz, 2012. "The influence of employment uncertainty on childbearing in France: A tempo or quantum effect?," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 26(1), pages 1-40, January.
  2. Pedro Gete and Paolo Porchia, 2011. "Fertility and Consumption when Having a Child is a Risky Investment," Working Papers gueconwpa~11-11-03, Georgetown University, Department of Economics.
  3. Brainerd, Elizabeth, 2010. "The Demographic Transformation of Post-Socialist Countries," Working Paper Series UNU-WIDER Working Paper W, World Institute for Development Economic Research (UNU-WIDER).

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