Dynamic Modeling of Fertility and Labour Market Participation of Married or Cohabiting Women
We jointly model fertility and participation decisions of women who livein couple using a dynamic model. In this paper we analyze the labour supplyand the fertility decisions of married or cohabiting women in France, Spain,Germany, UK and Denmark. We estimate, for the period going from 1994 to2001, a dynamic bivariate probit model with random effects using the ECHP(European Community Household Panel) and using a simulated maximumlikelihood estimator. These estimates are made on an annual basis takinginto account the initial conditions problem. The decisions of participationand fertility of women who live in couple depend on the individual characteristics(observed or unobserved) and are characterized by a significant statedependence. Our results suggest that the decisions of employment and fertilitycannot be modeled separately. The differences in fertility across thesecountries are explained by individual characteristics and variations in socialand fiscal policies. However, the unobserved components of heterogeneityalso play a central role in the observed differences across countries. Weshow the importance of the permanent income component in the participationdecision. Random effects are negatively correlated across the equationsof the model. Consequently, women who, a priori, prefer to have a higherconsumption have weaker preferences for fertility.
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