Job Security and Fertility Decisions

Abstract

The restrictions on duration and number of allowed renewals implied by fixed- -term contracts generate lower job security. In many countries, these contracts are particularly common among young women. In this paper, I study the impact of job security on fertility decisions. Using a policy reform, which took place in Portugal in 2003, I show that the lower job security associated with fixed-term contracts decreases the likelihood of giving birth. The negative effect is particularly strong for shorter contracts. To identify the different channels that explain these results, I build and estimate a dynamic life-cycle structural model where women decide both labour supply and fertility, conditional on the characteristics of the job contract. I then simulate two different labour market policies that have been discussed in the public debate. Imposing an automatic conversion into permanent contracts, with higher job security, at the end of the fixed-term contract limit, decreases the number of childless women by 8.3%. In contrast, applying contract-specific tax rates, penalising fixed-term contract wages and subsidising permanent contract wages, induces 20% of the women who are already mothers to have their second child. These results corroborate the reduced-form evidence, showing that job security is especially important at first birth and income is relatively more important for subsequent birth decisions.

Keywords: fertility, labour supply, fixed-term contracts, structural estimation

JEL Classification: J13, J22, J28, J41, J63