True Relationship Between Female Labor Force Participation and Total Fertility Rate: An Analysis of OECD Countries

Author Name YAMAGUCHI Kazuo  (Visiting Fellow, RIETI / Professor of Sociology, University of Chicago)
Creation Date/NO. December 2005 05-J-036
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It is well known that the relationship between the female labor force participation rate (FLPR) and the total fertility rate (TFR) shifted from a negative correlation (countries with higher FLPR have lower TFR) to a positive one (countries with higher FLPR have higher TFR) among the Organisation for Economic Cooperation and Development (OECD) countries in the 1980s. However, it has yet to be determined whether this means that the causal relationship between these two variables itself has changed or other factors caused the shift in the correlation. This paper shows that the causal relationship between FLPR and TFR in the OECD countries remains negative on average when unobservable fertility determinants inherent to each country are taken into account and controlled by the country-specific fixed effects, but changes in the social environment surrounding married employed women, i.e. enhancement in balancing work and family life, or increased work-family friendliness, from the 1980s onward have weakened this negative correlation through the following two mechanisms: 1) the interaction effect between FLPR and work-family friendliness on fertility rate, combined with an increase in the work-family friendliness, and 2) an increase in the indirect positive effect of FLPR that partially offsets - by way of association with work-family friendliness - the direct negative effect of FLPR. The paper also discusses the implications of these facts vis-a-vis Japan's policy measures to counter below-replacement fertility.