- Uma Radhakrishnan

1. A Dynamic Structural Model of Contraceptive Use and Employment Sector Choice for Women in Indonesia - Uma Radhakrishnan University of Virginia Third Annual Research Conference on Population, Reproductive Health, and Economic Development

2. Indonesian ContextTotal Fertility Rate in Indonesia, 1965-70 to 2000-02 Notes: This figure is from Mize (2006). Source: Contraceptive Prevalence Survey (1987) and Indonesian Demographic and Health Survey (1991, 1994, 1997, 2002-2003)

3. Indonesian ContextContraceptive Prevalence Rate in Indonesia, 1977-2006 Notes: This figure is from Mize (2006).

4. Indonesian ContextLabor Force Participation Rates by Gender in Rural and Urban Areas: Indonesia in 1971, 1980, and 1990 Notes: This table is quoted from Manning (1998). Source: CBS, Population Censuses, 1980 and 1990.

5. Indonesian Family Planning Program Introduced in late 1960s Family planning program was introduced as part of five-year development plans Initial geographic expansion Phase 1- 1970-74 (6 provinces including Java and Bali) Phase 2- 1975-79 (10 provinces belonging to Outer Islands 1) Phase 3- 1980-84 (remaining provinces) 5

6. Indonesian Family Planning Program: Geographic Expansion 6

7. Indonesian Family Planning Program: Changing Nature Initially followed a clinic-based approach Community Health Centers (Puskemas) Failed to reach a large group of target women Community-based approach was first established in mid 1970s Key idea was to use existing institutions to promote family planning Family Planning Distribution Points (PKKBD) Village Integrated Health Posts (Posyandu) 7

8. Women, Child Care, and Informal Sector • What remains unchanged is that women continue to hold primary child care responsibility • Large fractions of working women are employed in the informal sector characterized by: • Flexible timing • Easy entry and exit • Proximity to residence • Compatibility between work and family responsibilities (especially child care)

9. Research Motivation • Very little investigation of the impact of the family planning program on women’s labor force participation and wages • To understand the compatibility between work and family responsibility, especially child care provision as women make joint contraceptive method and employment sector choices • Structural model allows me to conduct policy experiments

10. Literature Review • Impact of family planning programs on fertility and socio-economic outcomes Goldin and Katz (2002); Miller (2005); Joshi and Schultz (2007) • Female labor force participation in developing countries Jaffe and Azumi (1960); Tiefenthaler (1994) • Modeling contraceptive behavior Carro and Mira (2002) • Joint modeling of employment and fertility decisions Hotz and Miller (1988); Francesconi (2002)

11. Contribution of this Research • Distinguish between formal and informal sectors of employment • Allow joint contraception and employment choices to understand link the between family responsibility and employment • Endogenize wage rates so that sector-specific experience impacts wages, and this in turn affects cost of having a child • Allow uncertainty in fertility control • Allow for unobserved preference heterogeneity, unobserved ability, and unobserved natural fecundity level

12. Economic Model • I develop a finite horizon, discrete choice dynamic structural model in which married women in each period choose both method of contraception and sector of employment to maximize their expected discounted life-time utility function

13. More on the Model • Marriage and education are treated as exogenous • Choose a sector of employment, k=1, formal sector k=2,informal sector k=3, not working • Choose a contraceptive method, m=1, modern method m=2, traditional method m=3 , not using contraception

14. Utility Function Expected discounted life-time utility function: ct - consumption (pecuniary component) qkmt - nonpecuniary component - choice-specific time shock 14

15. Motivation to Control Fertility and Sector of Employment • Motivation to control fertility depends on compatibility between raising children and employment sector • Motivation to control fertility can be inferred by method of contraception used • While making contraceptive decisions, a woman considers the trade-off between costs of having a child and the benefits from having one

16. Employment Decisions • Endogenous wage rates implies work experience affects future wage rates and this in turn impacts the cost of having a child • Access to modern methods of contraception provides women better control over their fertility and thereby widens the employment choices

17. Data • Indonesia Family Life Survey 1(IFLS 1), 1993 • Covers 13 provinces (321 Enumeration Areas) and 83% of the population • Retrospective panel • Individual and family level data on employment, income, education, migration, contraception use, and fertility • Community level data that can be linked to individual and household level data

18. IFLS 1 Provinces

19. Joint Choices and Identification • Model joint contraception and employment decisions • Unobserved heterogeneity may drive both decisions leading to biased estimates • Use exogenous variation in timing of introduction of 3 different types of family planning clinics and exogenous variation in minimum wages rates for identification

20. Estimation Outline • Solve the dynamic programming problem • Model unobserved heterogeneity using Heckman and Singer (1984) approach • Use representative people to reduce computational cost (Brien, Lillard, and Stern (2006)) • Estimate the birth probability function and wage equation outside the structural model. • After solving the dynamic programming problem and estimating parameters of wage and birth function, using data on observed choices and state variables , estimate parameters of utility function and budget constraint using simulated maximum likelihood techniques.

21. Policy Simulations • Decrease cost of using contraceptives. • Improvement in quality of family planning services such as reduced wait times • Reduction in price of contraceptives • Reduction in distance to clinics • Decrease disutility experienced by working mothers • Reduction in cost of child care • Flexible timings in formal sector employment • Simulate sector-specific wage subsidies.

22. Conclusion • Investigate the expansion of Indonesian family planning program on employment and contraceptive choices of women, while recognizing the interdependency of these choices. • Although outcomes are observed at the individual level, it has implications for the economy as a whole: participation of women in labor force increases per capita income and this translates into economic growth. • Once the estimation of the structural model is complete, I can conduct policy experiments that are of interest to researchers.

23. Nonpecuniary utility function

24. Exogenous Variation in Minimum Wage Rates • Exogenous variation in minimum wage rates in the different provinces over time is used to identify parameters related to employment choices. • Minimum wage rate is set by Ministry of Manpower based on recommendation of governors in different provinces. • Internal and external pressures unrelated to local economic conditions in setting of minimum wage rates • Reasonable to assume variation in minimum wage rates does not impact contraceptive choices.

25. Real Minimum Wages in IFLS 1 provinces Notes: Real Wages are in 2000 Indonesian Rupiah. Source: Minimum Wage data was obtained from Arup Suryahadi and David Newhouse.

26. Solving the Dynamic Programming Problem • Solution involves obtaining value function for each person for each point in the state space for a given set of parameters. • Backward recursion. • For t<T*, value function at each point in the state space is the sum of current utility plus the discounted value of the expected best choice next period. • Backward recursion continues until t=0. • Large state space makes it computationally expensive to evaluate the value function at every point.

27. Reducing Computational Cost • Impose upper bounds on several state variables (age of youngest child, birth spacing, and number of births). • Interpolation • Model unobserved heterogeneity using Heckman and Singer (1984) approach

28. Representative People • Individuals differ by the following exogenous characteristics: • religion • location • presence of 3 types of clinic • 4 types of people with respect to unobserved heterogeneity • This results in 2*2*23*4=128 representative people • Use interpolation method in Brien, Lillard, and Stern(2006)

29. Birth Probability Function • Estimate this is as a Probit, where the dependent variable is 1 if a birth occurs and 0 otherwise. • Use parameters from Probit regression to obtain probability of birth in the structural model after conditioning on method used, duration of use, age of the women, and unobserved fecundity level.

30. Wage Equation • Estimate outside structural model to reduce computational costs. • Two-stage method in Heckman(1979) is used to correct for selection bias, as wages are observed only for working women.

31. Likelihood Contribution Likelihood contribution of a woman who is not working in period t is: Likelihood contribution of a woman working in the informal sector in period t is:

32. Why Structural Model? • Enables policy simulation • According to Professor Steven Stern: “Adds discipline to modeling and estimation, and makes it easier to talk about the model and the economics in it”

33. Geographic Expansion of Indonesian Family Planning Program • Phase 1 provinces - West Java, Jakarta, Central Java, East Java, Yogyakarta, and Bali • Phase 2 provinces - Aceh, North Sumatra, West Sumatra, South Sumatra, Lampung, North Sulawesi, South Sulawesi, South Kalimantan, West Kalimanatan, and West Nusa Tenggara • Phase 3 provinces-Riau, Jambi, Bengkulu, East Nusa Tenggara, Central Kalimantan, East Kalimantan, Central Sulawesi, South East Sulawesi, Maluku, Irian Jaya, and East Timor.

34. Descriptive Statistics: Education Source: IFLS 1

35. Estimates of Contraceptive Failure Rates in the United States Notes: Failure rate is the percentage of women who accidentally become pregnant as estimated in Tussell and Vaughn (1999) using 1995 National Survey of Family Growth in the United States. Source: Quoted from Tussell and Vaughn (1999).

36. Distribution of sample Women by Province, 1993 Source: IFLS 1

37. Descriptive Statistics Notes: * denotes unit of measurement is Year. Source: IFLS 1

38. Number of Family Planning Clinics Introduced between 1980-93 Notes: Posyandu is Village Integrated Health Posts. Puskemas is Community Health Center. PKKBD is Family Planning Distribution Points. Source: IFLS 1

39. Identification of the Wage Structure • Identification of the wage structure comes from covariation of wages and observables across the two sectors for similar occupations.

40. Identification of State Dependence • State dependence is separately identified from unobserved heterogeneity by variation in choices made by individuals with similar observable characteristics who have experienced a certain state relative to individuals who have not experienced that state.

41. Exogenous Variation in Timing of Introduction of Posyandu Notes: Posyandu is Village Integrated Health Posts. “After” is for EAs where Posyandu was introduced after 1980 and “Before” is for EAs where Posyandu was introduced before 1980. Source: IFLS 1

42. Exogenous Variation in Timing of Introduction of PKKBD Notes: PKKBD is Family Planning Distribution Points. “After” is for EAs where PKKBD was introduced after 1980 and “Before” is for EAs where PKKBD was introduced before 1980. Source: IFLS 1

43. Exogenous Variation in Timing of Introduction of Puskemas Notes: Puskemas is Community Health Center. “After” is for EAs where Puskemas was introduced after 1980 and “Before” is for EAs where Puskemas was introduced before 1980. Source: IFLS 1

44. Budget Constraint - sharing rule parameter - wage earnings of the woman in sector k - husband’s wage - unearned income of husband and wife - price of contraception used - average expenditure on a child

45. Issues with Using Access to Family Planning Program as Instruments for Identification • Outcomes of interest may be biased by non-random nature of program expansion. • Correlation between timing of introduction and unobserved taste for fertility will lead to biased estimates

46. Identification (Utility Parameters) Parameters of utility function are identified by • Data on choices and individual characteristics • Variation in timing of introduction of different types of fertility clinics within each enumeration area and variation across enumeration areas over time in access to contraceptives • Exogenous variation in local labor market conditions (real minimum wage rates) across provinces and over time

47. Identification (Wage equation) • Coefficients of the wage equation are identified by covariation of observable characteristics and wages across individuals within a sector • Variance of the wage error is identified by differences in wages across individuals in a sector in a given period conditional on observables

48. Identification of Unobserved Heterogeneity • Variance of the unobserved preference heterogeneity is identified by persistence in choices made by individuals over time relative to individuals with same observables. • Variance of unobserved ability is identified by persistent differences over time across individuals in wages conditional on observables. • Variance of unobserved natural fecundity level is identified by variation in fertility across women conditional on observables and choices made.

49. Nonpecuniary Utility • Number of births • Age of youngest child • State dependence • Duration dependence • Birth spacing • Unobserved preference heterogeneity • Birth in the previous period • Interactions of choices with exogenous characteristics such as age, religion, location, access to contraceptives • Several other interaction terms

50. More about the Model • Choose 1 of 9 alternatives; denote dkmt=1, if sector k and method m are chosen in period t • Decision making horizon is from A0 to T*, but women live until TF, TF>T*