sufficiently large to drive some parents into the labor force.

To this end, I perform a heterogeneity analysis where I analyze whether the results vary by parent’s education, parent’s birth cohort and family structure. In line with these hypotheses, the analysis suggests that the labor-market consequences of fertility are more likely to be driven by poorer, less educated, and younger parents. In particular, mothers living in extended families experience the largest positive effects of fertility on labor supply suggesting that childcare provided by grandparents in extended families reduces the parental time cost of looking after children. However, the positive effect of fertility on father’s labor supply is mostly driven by those living in non-extended families, which suggests that in this type of families parents do not count on childcare provided by grandparents and therefore the mother has to stay in the household while the father probably supplies more labor in the market.

In this regard, this paper not only contributes to the traditional literature on fertility and labor supply but it also adds new important insights into the functioning of labor markets in developing countries as a response to an increase in fertility. First, this paper contributes to a more recent literature on the role of grandparental co-residence in household behavior. In particular, it sheds light on the intervening role of childcare provided by grandparents in extended families in the relationship between fertility and parental labor supply. Second, I analyze parental response to an increase in fertility on the type of work they do and the varying degrees of flexibility in the labor market, such as work off-farm, work on-farm and self-employed. This is essential in a developing country since labor markets in this context are characterized by higher levels of informality and a considerable share of the employment in rural regions.<sup>4</sup> Third, since there are still few studies that consider the effect of fertility on men’s labor-force outcomes, I examine how the mentioned effects differ across gender by including not only women but also men in the analysis. Lastly, this study is, to the best of my knowledge, the first that exploits Albanian parental preference for having sons combined with the siblings sex-composition instrument to examine the causal link between fertility and parental labor supply.<sup>5</sup> The results of this paper also have important policy implications. The main finding indicates that with lower childcare costs provided by the presence of grandparents in extended families but also greater child costs, parental labor supply is not reduced as a consequence of an increase in family size, suggesting that as an informal childcare provision mechanism, extended families

> 4In developing countries, women are under-represented in higher proportions in the labor market and, therefore, primarily engaged in family activities. In addition, the degree of informality in the labor market reveals an additional dimension of inequality in labor outcomes. Evidence suggests that women are more likely to be engaged in the agricultural sector and informal labor market (e.g. self-employed or unpaid family worker) (Blunch et al., 2001).

> 5Albania has experienced a drastic fertility decline during the last fifty years, which has fallen from almost 7 children per woman in 1960 to only 1.65 in 2012 (Gjon ̧ca, Aassve and Mencarini, 2008). In addition to low fertility levels, Albania is also characterized by a declining employment rate for both men and women during the last years. According to the Albanian Institute of Statistics (INSTAT), labor-force participation has continuously fallen during the last twenty-five years from 75 % in 1989 to 62 % in 2013, women being the most damaged from this decline. Therefore, the setting of a declining fertility rate accompanied by declining employment rates and combined with a patriarchal society make Albania an interesting case for this analysis.

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