Are Children Really Inferior Goods?
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This paper explores the causal link between income and fertility by analyzing women's fertility response to the large and permanent income shock generated by a husband's job displacement. I find that the shock reduces total fertility, suggesting that the causal effect of income on fertility is positive. A model that incorporates the time cost of children and assortative matching of spouses can simultaneously explain this result and the negative cross-sectional relationship. I also find that a husband's displacement accelerates childbearing, which is consistent with lifecycle models of fertility in which the incentive to delay is driven by expected earnings growth. 2010 by the Board of Regents of the University of Wisconsin System.
