A Dynamic Analysis of Household Decision-Making: The Mexican Case

In this paper we analyze the evolution of family structure, human capital accumulation and returns, labor force participation and household consumption and savings decisions for Mexican households. We use as theoretical framework the Life Cycle Model. Our analysis is based on a synthetic panel technique as proposed by Browning, Deaton and Irish (1985) that allows us to track the average behavior of cohorts over successive surveys. Mexico went through important demographic and socioeconomic changes between the mid-1970s and mid-1980s, simultaneously with the government`s implementation of different policies as well as some institutional changes, including an important birth control program and the expansion of educational opportunities. A reduction in fertility and an increase in the schooling of women are observed simultaneously with an increase in women`s labor force participation. Most of this process is dominated by age and cohort effects. In terms of consumption-saving decisions, we find that this reduction in the number of children and the increase in women`s labor force participation, reinforced by higher investment in education and higher rate of returns, have been correlated with higher saving rates for younger cohorts, particularly those where the head has higher educational levels.