THE EFFECT OF HUSBAND'S JOB DISPLACEMENT ON THE TIMING AND SPACING OF BIRTHS IN THE UNITED STATES

I. INTRODUCTION Many developed countries have experienced a sharp delay in births and decline in the fertility rate over the past few decades. In many European countries, this delay has led to a pronounced decline in the total fertility rate. In Southern Europe, Germany, and Austria, the fertility rate has fallen especially sharply to 1.3 and below (Adsera 2004; Gustafsson 2001). The United States' total fertility rate has remained relatively stable and close to the replacement level. However, there has been a continuing delay in childbirths since the late 1970s. The delay was manifested in the rising mean age at first birth (Mathews and Hamilton 2002), decreasing birth rates among younger women, especially among non-Hispanic women, and increasing birth rates among older women (Martin 2000; Mullin and Wang 2002). The decline in fertility rate and the corresponding aging of the population has become a major policy focus for many developed countries as the shrinking workforce is expected to strain many pension and social security programs. The classic models of Becker (1960) and Mincer (1963) were the first to explore the connection between women's wages, household income, and births. In these models, children are durable goods in the utility function of parents. An increase in the woman's wages will raise both household income and the price of children, resulting in offsetting income and substitution effects on the demand for children, so the exact direction of the effect of woman's wages is theoretically ambiguous. An increase in men's earnings, holding the price of children constant, will increase the demand for children through the income effect. However, economic growth and rising household incomes may not always lead to a larger number of children. Becker (1960) introduced the quantity--quality trade-off to explain the observed negative correlation between family income and family size. Later, Becker, Murphy, and Tamura (1990) examined a model in which a higher stock of capital reduced the demand for children through the cost of child care. As parents' wealth increases, they may demand children of higher "quality" (i.e., children who can be more productive), without necessarily demanding that they be productive. Using U.S. data, Tasiran (1995) provided evidence in support of the quantity--quality hypothesis by finding a negative effect of the husband's earnings on the probability of having births, but recent articles (Angrist, Lavy, and Schlosser 2005; Black, Devereux, and Salvanes 2005) have found no support for the quantity--quality trade-off. While empirical evidence on the quantity--quality trade-off is inconclusive, establishing the sign and the magnitude of the effect of income on the demand for children remains an important empirical matter. This article begins with the classical model of fertility and tests its implications for the effect of husband's earnings on the demand for children, captured by the timing and spacing component of fertility. I consider the effect of income on fertility in a life-cycle framework, which implies that the choice to have children at each age depends on the life-cycle sequences of incomes and wages. Ward and Butz (1980) argued that the effect of current economic activity on current births operates not only directly through current decisions but also through alterations in the forecasts of future income and opportunity costs. The importance of considering the life-cycle path of earnings was underlined by Gustafsson (2001), who argued that "the 'timing and spacing' econometric literature, using current female wage and male income as main explanatory variables, had not given the ultimate explanation for the aging of fertility in Europe because fertility involves lifelong decisions, which require lifetime perspective in the economic variables." Hence, it is important to consider how households adjust their child-bearing decisions in response to the information they obtain about their past and current economic situations and the forecasts they make about future economic conditions. …