Baby Busts and Baby Booms: The Fertility Response to Shocks in Dynastic Models

Larry E. Jones and Alice Schoonbroodt ()

Discussion Paper Series In Economics And Econometrics from University of Southampton, Economics Division, School of Social Sciences

Abstract: After the fall in fertility during the demographic transition, many developed countries experienced a baby bust, followed by the baby boom and subsequently a return to low fertility (BBB event). Demographers have linked these large fluctuations in fertility to the series of ‘economic shocks’ that occurred with similar timing – the Great Depression, World War II (WWII), the economic expansion that followed and then the productivity slow down of the 1970s. This paper is an attempt to formalize a more general link between fluctuations in output and fertility decisions, in simple versions of stochastic growth models with endogenous fertility. First, we develop initial tools to address the effects of ‘temporary’ shocks to productivity on fertility choices. These tools are based on a production function, where labor is the only input. Second, we analyze calibrated versions of these models. We can then answer several qualitative and quantitative questions: Is there ‘catching-up’ in fertility after a period of particularly low fertility? Under what conditions is fertility pro- or counter-cyclical? How large are these effects? Qualitatively, results show that there is no ‘catching-up’ in the model and that under reasonable parameter values fertility is pro-cyclical. Using the U.S. BBB event as a laboratory, we find that the elasticity of fertility to shocks lays between 1 and 2 and, finally, that in these simple models, productivity shocks capture about 70 percent of the pre-WWII baby bust in the U.S. For the post-WWII baby boom, the predictions of this simple model are small and happen late compared to the data.

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