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 should a rapidly aging economy respond to demographic decline? One approach is to adapt pension institutions by extending working lives; another is to mitigate demographic decline through policies that reduce the cost of children. We compare these strategies in an overlapping-generations economy calibrated to South Korea, in which fertility is a household choice, children cost money throughout dependency, and pronatal subsidies are financed through the same payroll tax as pensions. Under the model’s balanced-budget, no-default closure, keeping the retirement age at sixty eventually requires a payroll tax above one hundred percent, whereas an age of sixty-five produces a feasible path with a peak tax of twenty-one percent. Raising the age from sixty-five to sixty-seven is worth a further 4.9% of lifetime consumption. Financed childcare that raises completed fertility from 1.26 to 1.71 adds 1.3% relative to the age-sixty-five baseline; with retirement fixed at sixty, it leaves welfare 12.9% below that baseline. Fertility policy can therefore complement adaptation through later retirement in the model, but it does not replace it. This ranking survives across planner welfare objectives and alternative structures for the cost of children. The retirement-age experiments are stylized policy comparisons rather than an evaluation of Korea’s complete 2025 pension legislation.

Fathers on Leave: Firm Responses to Paternity Leave 

with Gozde Corekcioglu (Ozyegin University), Marco Francesconi (University of Essex), Astrid Kunze (NHH)