Centre for Market and Public Organisation

1. Centre for Market and Public Organisation Understanding the effect of public policy on fertility Mike Brewer (Institute for Fiscal Studies) Anita Ratcliffe (CMPO, University of Bristol) Sarah Smith (CMPO and IFS)

2. The project • Falling total fertility rates sparking interest in pro-natalist policies (France, Italy, Japan, Germany) • Phase 1: Understanding trends in fertility in the UK • What have been the main changes in fertility behaviour? • (How) Do these trends vary by education? • Phase 2: The impact of welfare reform on fertility • New Labour substantially increased financial help for families (working families tax credit, means-tested benefits) • Does fertility respond to financial incentives?

3. Methodology • Data • Family Expenditure Survey 1968/1990-2004, Family Resources Survey 1995-2004 • Use “own-child” method to construct fertility history • Restrict analysis to women aged 37 and under • Phase I Analysis: Cohort Perspective • Assign women to birth cohorts • Use survival analysis techniques • Phase II Analysis: Period Perspective • Recent reforms, cannot use completed fertility • Analyse annual birth probabilities

4. Completed family size, by cohort • Phase 1 (1935 – 1945) – decline in higher order births • Phase 2 (1945 – 1955) – decline in first and second births • Phase 3 (1955 – 1965) – period of stability • Phase 4 ??

5. Fertility and Education • Women with higher education levels have lower fertility • Have smaller families (conditional on motherhood) • Remain childless • Delay motherhood • However rise in participation in education accounts for half of overall decline in fertility. Fertility is falling over time within education groups. • Increasing polarisation of outcomes: Hawkes et al (2004) show that older mothers less likely to live in poverty.

6. The impact of welfare reform on fertility • New Labour substantially increased financial help for (low-income) families • Working Families Tax Credit (October 1999) • Increased means-tested child benefits • “Demand” for children • “Price” of children falls => positive effect • Income increases => positive/negative effect • Employment incentives affect the cost of time spent away from work => negative effect • Couples • No issues of partnership formation • No/negative employment incentives

7. Changed in child-contingent payments to couples£ per week, 2006 prices Income | decile |  Inc Supp  FC/WFTC Child ben Total  ----------+----------------------------------------------------------- 1 | 10.47 7.88 3.92 22.27 2 | 9.43 14.67 4.07 28.17 3 | 7.56 14.88 4.14 26.59 4 | 5.90 12.22 4.18 22.31 5 | 5.03 9.90 4.21 19.14 6 | 3.23 6.59 4.18 14.00 7 | 2.27 3.82 4.16 10.26 8 | 1.55 2.72 4.17 8.45 9 | 1.27 1.97 4.16 7.40 10 | 0.74 1.12 4.21 6.07

8. Methodology • Natural Experiment – differences-in-differences • Compare fertility “before” and “after” the reform for couples affected by the reform: the “treatment” group • Contrast with change over the same time period for couples not affected by the reform: the “control” group • Change in fertility attributed to reforms • Birth probabilities, financial year basis

9. Methodology • Assumptions: • Control group is similar to treatment group in all but exposure to reform • Response to other reforms should be the same (Employment Relations Act 1999, Employment Act 2002) • Composition of treatment and control group is stable over time • No “spillover” effects

10. Choice of Treatment and Control Group • Current Earnings • Correlated with reform impact • Related to employment and fertility choices; affected by the reform • May be subject to transitory shocks • Education (woman and partner) • Exogenous to reform • Less strongly correlated with reform • However, differential trends in fertility… • Education and Earnings • Picking up those who are likely permanently to have low incomes

11. Birth probabilities

12. Regression Model • Before Reform: April 1985 – March 1999 • Post Reform: April 2000 – March 2003 • Other Regressors: • Common and differential time trends, including a common post reform trend • 25th and 75th percentiles in male and female wage distribution • Cubic in mother’s age, interacted with her education and children in household • Children in household, interacted with age of youngest child and education of mother

13. Main results (OLS) • Increase in the probability of giving birth for “treated” group • Stronger effect for first births

14. Some other results • No differential response by age of woman • Women at different stages in life-cycle have similar responses to fertility incentives • Robustness Analysis • Positive fertility effect with narrower window • No effect found using spurious reforms • Quantity/Tempo? • Preliminary analysis on the age at first birth for treated group suggests no change age at first birth

15. Some conclusions • Evidence suggests increase in fertility of women in low education/ earnings groups, consistent with impact of welfare reform • Estimated increase in annual birth probability of 0.7 – 0.8 percentage points for women in couples in low_ed group would imply around 11,000 – 12,500 additional births a year (total births in 2005 = 645,000)