Timing of the Birth: the Role of Productivity Loss and Income Security

As significant as the shift from quantity to quality in fertility decisions, a rise in the age at first birth has been commonly observed in the more developed world. This paper attempts to understand such demographic trend both theoretically and empirically. We develop a continuous-time lifecycle model, in which a married woman decides when to have her first child and how she allocates her time to human capital accumulation and market activity. We then calibrate the benchmark model using data from CPS and generalize the model to allow for heterogeneous skill levels. We find that the duration of fertility-related productivity loss and income security play a more important role than the conventional human capital channel in explaining the childbearing timing differentials between skill groups, and women are more sensitive to changes in fertility preference as opposed to leisure loss. Decomposition exercise shows that the two novel channels can explain 71.3% of the difference between skill groups. Compared with high-skilled women, low-skilled women are more vulnerable to changes in labor productivity, human capital, husband’s income, fertility preference for children and leisure loss in raising children. As a result, low-skilled women push up or defer their timing of childbirth more relative to high-skilled women.