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Fertility Effects of Aggregate Unemployment Christian Schmitt Socio-Economic Panel Study (SOEP) 2006 Conference of the European Panel Users Network Universidad Pompeu Fabra de Barcelona, 8-9 May 2006. Overview. Low Fertility in Europe - Brief Introduction Research Topic and Previous Findings
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Fertility Effects of Aggregate UnemploymentChristian SchmittSocio-Economic Panel Study (SOEP)2006 Conference of the European Panel Users NetworkUniversidad Pompeu Fabra de Barcelona, 8-9 May 2006
Overview • Low Fertility in Europe - Brief Introduction • Research Topic and Previous Findings • Theoretical Foundations • European Labour Markets during the 90ies • Data and Methods • Findings and Conclusion EPUNet 2006
Background I • Below replacement levels of fertility among most western European countries Figure 1: Total fertility rate (TRF) in EU countries 2001 Source: European Communities 2003 EPUNet 2006
Background II Potential causes: 1) Increasing female labour-force participation 2) Acquisition of economic resources prior to family formation (also linked to labour-force participation) • Result: Strong integration into the labour force vs. time needed for family formation. • Time as a scarce resource • in a situational as well as in a • Life-course related sense EPUNet 2006
Background III • Difficulties in combining career and family roles, especially for women Conclusion: High opportunity costs of parenthood EPUNet 2006
Research Topic • Second part of a research project dealing with fertility effects of unemployment • Part one: Effects of inidivdual unemployment • Findings in brief (lowered opportunity costs vs. reduced economic backing • Part two: Effects of aggregate unemployment EPUNet 2006
Research Topic and Previous Findings • Unemployment rate as economic predictor of future labour market opportunities & prospects • Previous research based mainly on macro level models of economic indicators affecting fertilty • Unemployment Rate, Average earnings, GNP as predictor of TFR EPUNet 2006
Research Topic and Previous Findings Disagreement in previous reserach: • Pro-cyclical effects: • Wilkinson 1973, Macunovich&Easterlin (1988), Macunovich (1995), etc. • Vs. Countercyclical effects: • Butz & Ward (1979) (=> Relation to female earnings and reference to the New Home Economics) • Major Problem: Derivations of aggregate data without understanding of the underlying effects and correlations on the micro level EPUNet 2006
Theoretical assumptions I Theory of Action • Maximisation of the utility under limited resources • Given constraints and preferences • Gender specific structuring of resources and constraints • New home Economics (esp. Becker 1981, 1993) • Gender specific division of labour between household and market work with the woman specialising in household work in most cases Brown Bag
Theoretical assumptions II Rational Choice and the Life-Course-Perspective • Preferences and expected utility are affected by life course transitions and trajectories • Social Change affecting the Life-Course: Educational Expansion and the role of human capital investments • Example: women may reject the role of the sole homemaker and work full time in order to avoid human capital depreciation Brown Bag
Theoretical assumptions III Institutions as Tie between Life-course an Rational Choice • Welfare-state institutions structuring the life-course (Mayer 1990) • Institutions structuring (expected) utility • Imminent rationality vs. life-course dependent rationality • Rational-Choice core (example: discount assumption) vs. life course rationality • Family formation as rational choice, given a causal development of the life course (appearing as irrationality) Brown Bag
Theoretical assumptions IV High unemployment rate: • Increase in labour market related uncertainties, decrease or staqnation in earnings potential Coping strategies for this situation? 1)Improvement of labour market position to prepare for expected risks • delay in family formation 2) Family formation as alternative pathway • temporary labour market exit as coping strategy • Gender specific differentiation (childbearing and childbirth affecting “female” time resources only) and • Cultural differentiation (different childcare cultures [family vs. public care] and different supply of childcare institutions; different family support of social policies) Brown Bag
Theoretical assumptions III • Individual fertility decision structured by (aggregate level) information, predicting economic perspectives Three major questions: 1) Which information is used by the individual ? 2) How does the information (of high unemployment, e.g.) affect individual decisions? • Decision making under uncertainty and • Effects of Risk Aversion 3) How does the individual interprete the information • Different threat potential of high unemployment rates in partial labour markets Brown Bag
Welfare state typology as frame of reference • Cross national comparison based on Esping Andersen‘s typology of welfare regimes (1990) • Countries included in the analysis: • United Kingdom (anglo-american liberal) • Germany (continental conservative) • France (continental conservative) • Finland (scandinavian social-democratic) EPUNet 2006
Evidence from the macro level Figure 2: Unemployment Rate in EU Countries Source: OECD (2004) Note: All values in percentage points EPUNet 2006
Evidence from the macro level Figure 3: Gender Unemployment Gap Source: OECD (2004) Note: All values in percentage points EPUNet 2006
Evidence from the macro level Figure 4: Total Fertility Rate Source: Eurostat (2006) Note: All values refer to TFR-Indicator EPUNet 2006
Social policy settings I – Family related benefits • France and Finland: Encouragement of the combination of family and occupational attainment(paternity leave, extensive childcare system) • Germany: Encouragement of women to retreat from the labour market (lasting childrearing leave, low coverage of childcare institutions) • UK: Dual pressure: Limited financial aid and high cost of widely privatised childcare system EPUNet 2006
Social policy settings II – Unemployment related benefits Unemployment insurance: • Finland: Tolerant rules of entitlement, high payments, increased payment for parents, 23 months • Germany: High payments, increased payments for parents, 4 to 32 months • France: Payment 4 to 60 months, below 60% of last net income • UK: Low flat rate for 6 months Transfers are ceased in the UK after 6 months, in D, Fin and F subsequent unemployment assistance EPUNet 2006
Design of the multivariate analysis • Application of event history methods • Piecewise-constant exponential hazard model • Time variant (measured in months) and invariant covariates: • h(t) = exp(t) exp(x + zt) • Process time starts with 16th year of life (month 192, population at risk: 16-44 years of age) Brown Bag
Data and Methodology I • Consideration of Transitions to first birth is considered (family formation) • Month offertilty decision as relevant event (to account for a causality) • Utilisation of ECHP-data from 1994 to 2001 • Separate estimates by country and gender EPUNet 2006
Data and Methodology II Figure 5: Transition to first-parenthood – Kaplan-Meier survival estimates EPUNet 2006 Source: ECHP 1994 - 2001, own calculationsn = 5.668
Data and Methodology II Figure 5: Transition to first-parenthood – Kaplan-Meier survival estimates EPUNet 2006 Source: ECHP 1994 - 2001, own calculationsn = 7.341
Data and Methodology II Figure 5: Transition to first-parenthood – Kaplan-Meier survival estimates EPUNet 2006 Source: ECHP 1994 - 2001, own calculationsn = 9.865
Data and Methodology II Aggregate Information on: • GNP, • Annual unemployment (NUTS0) • Regional annual unemployment rate (NUTS1) • Gender specific unemployment rate (NUTS1) • Age specific unemployment rate (NUTS1) • Individual activity status (incl. individual UE and duration) • Information on previous long-term unemployment • Individual and partners income and benefits and transfers • Information on education, relationship, housing, origin, etc. EPUNet 2006
Findings IAggregate Indicators (no Covariates) p < 0.10 (*), p < 0.05 (**) and p < 0.01 (***) Source: ECHP 1994-2001, own calculations EPUNet 2006
Findings IAggregate Indicators (Full Model w.o. Partner) p < 0.10 (*), p < 0.05 (**) and p < 0.01 (***) Source: ECHP 1994-2001, own calculations EPUNet 2006
Findings IAggregate Indicators (Full Model with Partner) p < 0.10 (*), p < 0.05 (**) and p < 0.01 (***) Source: ECHP 1994-2001, own calculations EPUNet 2006
Conclusion I • Effects for partial labour markets: • No significant effects for Persons in labour market segments with higher and lower unemployment risks: • In detail: No significant effects for • managers and senior officials, professionals or for • service and sales-persons and machine operators EPUNet 2006
Conclusion II • Widely negative fertility effects of high unemployment rates • Special case for Finland • Gender specific uniform effect direction • No converse effect direction for GNP and Unemployment rates! • Especially clear effects for detailed indicators => Individuals use differentiated information for family formation decisions EPUNet 2006
Conclusion III France: • No or slightly negative effects (especially if controlling for youth unemployment) • Possibly related to the cultural traditions of work-family combination and the extensive public support for families EPUNet 2006
Conclusion IV Finland: • Positive effects of high unemployment rates • Special case of extensively high unemployment rates in Finland in the early 90ies • Possible interpretation: Family formation as a focus on an alternative life goal (instead of labour market integration) • Backing by an extensive public support EPUNet 2006
Conclusion V Germany: • Diminished likelihood of family formation under high unemployment • Work-family conflicts especially dominant in Germany (breadwinner-homemaker model) • Sequential model of family formation as common strategy (continued delay of family formation) • High level of social security shaping risk-averse behaviour EPUNet 2006
Conclusion VI United Kingdom: • No significant effects of aggregate economic indicators • Deregulated labour market with a high level of entry and exit rates • Possibility: Labour market related risks are common and thus do not affect childbirth decisns. • Low level of social security, that diminishes subjective risk perception EPUNet 2006