Envy, inequality and fertility

This study seeks to examine the consequences of “keeping up with the Joneses” on household fertility outcomes. “Envy” is introduced in a simple “quality-quantity” trade-off type of fertility model, where the trade-off is induced by the fact that being out of the labor market due to child-bearing is more expensive for people with higher human capital levels. The effect of introducing upward-looking “envy” in the model is that households, notably low-income ones, reduce fertility in an attempt to emulate consumption levels of their high-income neighbors. This effect is stronger the larger the reference consumption—that is, in areas with higher income inequality, which are characterized by longer right tails of income distributions. It follows that if households indeed tend to “keep up with the Joneses,” one should expect lower fertility rates in areas with higher income inequality compared to more equal areas. The empirical analysis using the American Community Survey confirms that indeed, households residing in more unequal metropolitan areas tend to have fewer children than households residing in more equal metropolitan areas.