Fertility, Labor Force Participation and the Relative Income Hypothesis:

. AN empirical test with Canadian data was made of the relative income hypothesis which states that fertility and labor force participation depend upon relative income, where relative income refers to the current family income level relative to the family's desired income level. The interpretation of the desired income level is modified slightly to mean that it is determined not by the past parental income, as originally formulated, but by contemporaneous income levels of other age groups. An empirical model of labor force participation is estimated for the post‐war period. The results on the whole tend to provide empirical support for the relative income hypothesis. The post‐war baby boom, which led to a decline in the income of young adults relative to that of older age groups, had the effect of increasing participation rates of young adults, especially of young (married) women.