Offsetting the Demographic Drag? Endogenous Female Labor Supply in Latin American Economies

The share of Latin America’s working-age population has begun to fall on the back of increased longevity and falling birth rates. The female participation response to falling child dependency is the largest domestic margin available to offset it. We quantify that margin, combining harmonized microdata from seven large economies with a tractable overlapping generations model in which female labor supply responds endogenously to household composition. We first decompose the region’s gender participation gap into several margins, with about one third arising from the differential labor supply response to household-composition between men and women (a ”motherhood penalty”). Embedding these estimates in a macro framework in which male and female labor can act as complements or substitutes, we find that the female participation response to falling child dependency can partially offset the demographic drag, raising regional GDP by between 3.1 and 11.3 percent by 2050 relative to a path with participation held fixed. The range reflects both fundamental uncertainty around future paths of comoving national trends and substantial heterogeneous labor supply responses across countries.