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Declining Fertility and Economic Well-Being: Do Education and Health Ride to the Rescue?

Author

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  • Prettner, Klaus

    (Vienna University of Economics and Business)

  • Bloom, David E.

    (Harvard School of Public Health)

  • Strulik, Holger

    (Leibniz University of Hannover)

Abstract

It is widely argued that declining fertility slows the pace of economic growth in industrialized countries through its negative effect on labor supply. There are, however, theoretical arguments suggesting that the effect of falling fertility on effective labor supply can be offset by associated behavioral changes. We formalize these arguments by setting forth a dynamic consumer optimization model that incorporates endogenous fertility as well as endogenous education and health investments. The model shows that a fertility decline induces higher education and health investments that are able to compensate for declining fertility under certain circumstances. We assess the theoretical implications by investigating panel data for 118 countries over the period 1980 to 2005 and show that behavioral changes partly mitigate the negative impact of declining fertility on effective labor supply.

Suggested Citation

  • Prettner, Klaus & Bloom, David E. & Strulik, Holger, 2012. "Declining Fertility and Economic Well-Being: Do Education and Health Ride to the Rescue?," IZA Discussion Papers 6527, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6527
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    More about this item

    Keywords

    demographic change; effective labor supply; human capital; population health; economic growth;
    All these keywords.

    JEL classification:

    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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