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Economic Returns of Childrearing and Fertility Transition

This study examines the economic returns of childrearing during the fertility transition. It proposes a new method for assessing the economic returns to the average parent over the entire parental lifecycle, taking into account both intergenerational wealth flows and the economic value of children. The findings challenge previous empirical assessments and suggest that children are net economic benefits to parents of high cohort fertility, while being net economic costs to parents of low cohort fertility.

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Economic Returns of Childrearing and Fertility Transition

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  1. Economic Returns of Childrearing and Fertility Transition Nicole Mun Sim Lai

  2. Caldwell’s Wealth Flow Theory (1976) • Economic value of children and the direction of intergenerational wealth flows determine the incentive of childbearing • Empirical assessments of economic returns to childrearing have shaky foundations • Qualitative data • Do not measure the whole lifecycle • Ignore intra-household transfers

  3. Objective & Contribution • Examine the economic returns of children during the fertility transition • Describe a new method for assessing the economic returns to the average parent over the entire parental lifecycle

  4. Methods • Measure the net familial transfers of the average parent over the entire parental lifecycle • Average net upward transfers received by a parent at age a of birth cohort c • Average child costs given by a parent at age a of birth cohort c • Historical familial transfers (1950-2003) & net upward transfers projection (2004-2040)

  5. Parents of high cohort fertility (5-3.5 children) receive positive net familial transfers from children. The direction is upward • Parents of low cohort fertility (<3.5 children) receive negative net familial transfers from children. The direction is downward. • Support Caldwell’s Wealth Flow Theory

  6. Does the timing of the fertility reduction correspond to the timing of the changes in the direction of net transfers? • No: if use net familial transfers • Maybe: if use net familial transfers plus opportunity cost of physical investment

  7. Conclusion • Children are net economic benefits to parents of high cohort fertility & net economic costs to parents of low cohort fertility. • Parents rely on children for old-age support • Our approach is more comprehensive and return estimates are higher than previous studies (Stecklov 1999 (-31.5%); R. Lee 2000 (-6.7%); R. Lee and K. Kramer 2002) • Implication: Trend shows that children are net economic costs to young parents in current decade. • Pronatalist programs for declining fertility

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