Employment Effects on East German Fertility After Unification

Vital statistics indicate that the fertility rate in East Germany dropped sharply after German unification; moreover, it has not yet rebounded but remains stable at a low level. This paper uses data from the German Socio-Economic Panel (GSOEP) to examine births in the former German Democratic Republic in 1992 and 1993. The primary explanatory variables include womenÕs employment status in 1991 and 1992, expectations about future unemployment, and the employment status of cohabiting or marital partners. Our hypothesis is that young women who become unemployed are likely to use this "occasion" to become pregnant. We assume that the preference for children has not changed dramatically among East German women following unification. Therefore, we view the decline in fertility as a change in opportunity costs. In general, there are long-term opportunity costs associated with an interruption in employment due to the subsequent devaluation of human capital. Specifically, in East Germany the reentry rates of unemployed people into the labor market are very low. As a result: 1) the opportunity costs of having a child are quite high for employed women since they are likely to experience difficulties reentering the labor force; 2) for women outside the employment system, who are likely to remain there, the opportunity costs are quite low. Our results run counter to a widely held belief that young East German women become unemployed because they get pregnant. Instead, our longitudinal analyses suggest that the timing goes in the other direction: women become pregnant after they are unemployed.