This paper studies the implications of paid parental leave (PPL) policies on fertility and children’s human capital. Using micro-level data, I show that the introduction of PPL in New Jersey is associated with an increase in fertility. To investigate the implications of these policy-induced responses for children, I develop a heterogeneous agent model that combines endogenous fertility and multiperiod parental investments in children’s human capital. I structurally estimate the model parameters to match key moments characterizing the U.S. economy. I then use the model to conduct a counterfactual exercise by simulating the introduction of the New Jersey policy at the national level. The model predicts an increase in higher-order births in response to the policy implementation, with larger effects among middle-income families and among low-educated women. The increases in fertility lead parents to dilute per-child investment, negatively affecting children’s human capital through the mechanism of the quantity-quality trade-off. Finally, I show that in the absence of fertility responses, PPL would lead to higher investment in children, with positive implications for their human capital, underscoring the central role of fertility in shaping policy effects. 

Welcome to the Gray Parade:The Welfare Economics of Shrinking Populations

with Joseph Kopecky (Trinity College Dublin)

How costly is demographic decline, and for whom? The answer depends critically on normative assumptions that are rarely made explicit. We build a multi-period overlapping generations model with endogenous fertility, human capital investment, and a pay-as-you-go pension system, calibrated to South Korea—the country with the world’s lowest fertility rate. We evaluate welfare under nine alternative planner objectives, including total and average utilitarianism, Rawlsian maximin, and the P- and A-efficiency benchmarks of Golosov, Jones, and Tertilt (2007).We compute consumption-equivalent variation (CEV) for 216 counterfactual scenarios combining four fertility targets, six policy bundles, and nine welfare criteria. Fertility targets are implemented via child subsidies that steer endogenous fertility along specified paths. Pension reform dominates all other instruments under every welfare criterion, generating CEV gains of 11–22%. In contrast, higher fertility typically reduces welfare by increasing the fiscal burden of the pension system and lowering human capital investment. Welfare conclusions depend strongly on the normative criterion: for a replacement fertility target, the CEV ranges from −0.6% (Rawlsian) to −5.3% (total utilitarian). Methodologically, we show that CEV under total utilitarianism becomes unbounded as the social discount factor approaches one, highlighting a fundamental tension between population ethics and standard welfare metrics.

ManyDaughters Study: International Initiative organized by DIW

Research Team with E. Frezza (universita' della Svizzera Italiana)