The Effect of (Relative) Wages and Human Capital on Fertility Choices: Lessons From East Germany’s Fertility Decline After Unification

This project seeks to provide insights into the causes of the dramatic decline in fertility rates in East Germany. Our conjecture is that the observed changes are a rationale response to changes in the labour market and in particular the wage structure. Based on a life-cycle model of labour supply and fertility, we will use simulations to assess whether steeper wage profiles and an increase in women’s relative wages can account for the observed baby bust in East Germany. Our empirical analysis is based on a newly available panel dataset that includes full employment and fertility biographies of women in East and West Germany before and after unification. For identification, we exploit plausibly exogenous permanent shifts in the wage and employment structure as labour demand adjusted to the new skill requirements of a market economy. The project will thus provide new insights into how to combine high female participation rates and fertility around replacement, especially among high-skilled women. Both play a key role for sustaining and strengthening the human capital base that is so important for the competitiveness of European knowledge economies.

Duration: April 2011 - June 2013

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• Jun.-Prof. Dr. Melanie Arntz, ZEW – Leibniz Centre for European Economic Research, Department of Labour Markets, Human Resources and Social Policy
• Jun.-Prof. Christina Gathmann, PhD, University of Mannheim, Public Finance and Economic Policy Group and ZEW – Leibniz Centre for European Economic Research, Department of Labour Markets, Human Resources and Social Policy
• Prof. Martha Bailey, PhD, University of Michigan, Department of Economics