The Baby Boom and World War II: A Macroeconomic Analysis · technology revolution.” (But see...

The Baby Boom and World War II: A Macroeconomic

Analysis

Ma�hias Doepke1 Moshe Hazan2 Yishay Maoz3

1Northwestern University, NBER and CEPR

2Tel-Aviv University and CEPR

3Open University

February 2015

Moshe Hazan (TAU and CEPR) Doepke, Hazan, Maoz February 2015 1 / 46

Introduction

Total Fertility Rate in the U.S.

1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980

Calendar Year

Introduction

Completed Fertility Rate in the U.S.

1910 1920 1930 1940 1950

CompletedFertility

Year of Birth

Introduction

The Traditional View Versus Our View

Traditional view: the baby boom is too big and lasts too long to be

explained by the war.

This argument applies only to “catch up” fertility.

Our view: the war ma�ered because it resulted in a large, temporary

demand shock for female labor.

This shock had an asymmetric e�ect on older and younger women.

Introduction

The Mechanism

World War II draws women into the labor market. The war generation

accumulates labor market experience.

A�er the war men return but many war-generation women stay at

work, raising female labor force participation.

Higher e�ective labor supply induces young women to leave the labor

market at a younger age and to have children instead.

Crowding-out e�ect reverses when war generation retires from the

labor market.

Introduction

The Mechanism

labor market.

Introduction

The Mechanism

labor market.

Introduction

The Mechanism

labor market.

Introduction

Labor Supply of Young and Old Women in the U.S.

Women 20-32

1940 1950 1960 1970 1980

Women 33-60

Introduction

Ratio of Female to Male Average Wages, Singles 20-24

��

Introduction

Age Specific Fertility Rates in the U.S.

Women 15-19

Women 20-24

Women 25-29

1940 1950 1960 1970 1980

Women 30-34

Women 35-39

Women 40-44

Introduction

Road Map

1 Existing theories of the baby boom.

2 Cross state evidence from the United-States.

3 Model.

4 World War II and the Baby Boom –�antitative Analysis.

5 International Evidence.

Introduction

Road Map

3 Model.

Introduction

Road Map

3 Model.

Introduction

Road Map

3 Model.

Introduction

Road Map

3 Model.

Literature

Existing Theories

Easterlin (1961), “the relative income hypothesis.”

Greenwood, Seshadri, Vandenbroucke (2005), “the household

technology revolution.” (But see Bailey and Collins (2011))

Albanesi and Olive�i (2014), “the maternal health revolution.”

Zhao (2014), “The fiscal burden of WW II”

Non of these explain why fertility increased mainly among youngwomen:

The increase in fertility among the 20-24 yrs old accounts for more than40 percent of the rise in fertility.

Literature

Existing Theories

Literature

Existing Theories

Literature

Existing Theories

Literature

Existing Theories

Literature

Existing Theories

Cross-State Evidence from the U.S. Data and Empirical Strategy

Cross-State Evidence from the United-States

Pooled census data for 1940 and 1960.

Use the variation in mobilization rate of men to WW II across U.S.

states as in Acemoglu, Autor and Lyle (2004).

Assess the e�ect of WW II on relevant outcomes using a di�erence in

di�erence strategy.

yist = λs + d1960 +X ′istω + µd1960ms + ǫist.

Relevant outcomes, yist:

Fertility and marriage rate among young women.

Labor supply among young and old women.

Summary Statistics

Variable Age 25–35 Age 25–29 Age 30–35 Age 45–551940 1960 1940 1960 1940 1960 1940 1960

# kids≤ 5 0.48 0.87 0.55 1.10 0.42 0.70(0.75) (0.96) (0.78) (1.02) (0.71) (0.88)

# kids Ever Born 1.68 2.43 1.47 2.25 1.86 2.55(1.56) (1.54) (1.45) (1.46) (1.62) (1.59)

Ever Married 0.83 0.92 0.79 0.90 0.87 0.94(0.38) (0.27) (0.41) (0.30) (0.34) (0.24)

Employed 0.30 0.33 0.32 0.32 0.28 0.34 0.20 0.45(0.46) (0.47) (0.47) (0.47) (0.45) (0.47) (0.40) (0.50)

Weeks Worked 15.5 15.3 16.4 15.4 14.5 15.2 11.0 20.6(22.5) (20.9) (22.8) (20.7) (22.2) (21.0) (20.3) (22.8)

mean s.d. min max

Mobilization rate 0.474 0.034 0.412 0.545

Correlation between WWII Mobilization Rates, Fertility &

Marriage Rates

CT ME MA

PAILINMI OH

MONESD

AR FLGA LA

SC TXKY MD OKTN WV

NVNM UTWY

0.150.050.050.150.250.350.450.55

0.4 0.45 0.5 0.55

Diff.Fertility

19301940

Mobilization Rate

RIVTDE

NJNYPA

MIOHWI

MO NENSSD

VAALAR

0.150.050.050.150.250.350.450.55

0.4 0.45 0.5 0.55

Diff.Fertility

Mobilization Rate

CTME MA

NJNY PAIL

INMI OHWI IA KS

MONENS

SD VAALAR

MSNCSC TXKY MD

NVNMUT

0.4 0.45 0.5 0.55Diff.Marriage19301940

Mobilization Rate

NH RIVTDE

PAILINMI OHWI IA KS

NCSC TXKY

OKTN WV AZ

NMUTWY

0.4 0.45 0.5 0.55Diff.Marriage19401960

Mobilization Rate

Cross-State Evidence from the U.S. Results

Impact of WWII Mobilization Rates on Fertility and

Marital Status – Women age 25-35

Dependent variable (1) (2) (3)

Age 25-35 (N = 225,613)

# kids≤ 5 1.403 0.953 0.855

(0.257) (0.237) (0.211)

# kids Ever Born 2.032 0.818 0.825

(0.717) (0.543) (0.543)

Married 0.474 0.488

(0.118) (0.119)

educ & farm status no yes yes

marital status no no yes

Impact of WWII Mobilization Rates on Female Labor

Supply – Women age 25-35

Age 25-35 (N = 225,613)

Employed -0.944 -0.608 -0.385

(0.157) (0.137) (0.098)

Weeks worked -33.358 -23.173 -12.904

(7.903) (7.065) (5.179)

Impact of WWII Mobilization Rates on Female Labor

Supply – Women age 45-55

Age 45-55 (N = 164,408)

Employed 0.078 0.231 0.227

(0.082) (0.084) (0.074)

Weeks worked 16.682 18.390 18.143

(3.389) (3.375) (3.735)

Robustness of Empirical Results

Results are robust to:

Spli�ing the young to 25-29; 30-35.

Assigning mobilization rates by state of residence

Using sample of women who live in the same state in the 5 yrs precedingthe census

Estimating Ordered Probit/Poisson/Negative Binomial models for thefertility outcomes.

Estimating Probit models for Employed and Married.

The Model

A version of the neoclassical growth model enriched along threedimensions:

1 Married couple life-cycle decisions on fertility and female labor supply.

2 The production technology features limited substitutability betweenwomen and men.

3 Government that purchases goods, employs soldiers, levies taxes andissues debt.

The Model

Model Households

The Model

Overlapping generations of households consisting of a man and a

woman.

Period corresponds to 2.5 years. People turn adult at age 20, retire at

60, and live until age 70.

Women can have one child per period from age 20 until age 37.5.

Fertility is stochastic: Prob of conceiving =1 if age ≤ 32.5; Prob < 1 if age

> 32.5.

When not having a birth, women decide whether to participate in the

labor market.

Endogenous accumulation of experience.

Men supply labor inelastically.

Model Households

The Model

woman.

> 32.5.

labor market.

Model Households

The Model

woman.

> 32.5.

labor market.

Model Households

The Model

woman.

> 32.5.

labor market.

Model Households

The Model

woman.

> 32.5.

labor market.

Model Households

The Model

woman.

> 32.5.

labor market.

Model Households

The Model

woman.

> 32.5.

labor market.

Model Households

Preferences and Budget Constraint

Utility:

Ut = Et

ln(ct,j) + σxi ln(xt,j + xWt,j)]

+ σn ln(nt)

Budget constraint:

ct,j + at,j+1 = (1 + rt+j)at,j + It,j − Tt+j(It,j , rt+jat,j),

where It = wmt+jemt,j + w

ft,j lt,j .

Model Households

Preferences and Budget Constraint

Utility:

Ut = Et

ln(ct,j) + σxi ln(xt,j + xWt,j)]

+ σn ln(nt)

Budget constraint:

ct,j + at,j+1 = (1 + rt+j)at,j + It,j − Tt+j(It,j , rt+jat,j),

where It = wmt+jemt,j + w

ft,j lt,j .

Model Households

Female Labor Supply and Time Constraint

Female labor supply decision is discrete: lj ∈ {0, 1}.

Fixed cost zj ∈ {0, z̄} of re-entering the labor market captures

adjustment costs.

The female time constraint:

xj = h− κbj − φ(nyj )ψ − lj − zj .

Model Households

adjustment costs.

Model Households

adjustment costs.

Model Households

Endogenous Experience

Initial experience normalized to one for both sexes:

em1 = ef1= 1.

Labor market experience evolves according to:

emj+1 =(1 + ηm,j)emj ,

=(1 + ηf,jlj − ν(1− lj))efj .

Model Households

Endogenous Experience

Initial experience normalized to one for both sexes:

em1 = ef1= 1.

Labor market experience evolves according to:

emj+1 =(1 + ηm,j)emj ,

=(1 + ηf,jlj − ν(1− lj))efj .

Model Households

Labor Supply and Fertility Decisions

Implications:

All women work initially since they don’t have children yet.

A�er having children, most women don’t resume work, because time isscarce and presence of adjustment cost.

Heterogeneity in labor supply and fertility due to di�erences in leisureweight σxi.

Timing of fertility:

On the one hand, delay children as late as possible to extend the initial

earnings period.

On the other hand, have children when still young b/c fecundity declineswith age.

Thus, exit from labor market depends on desired number of children.

Model Households

Implications:

earnings period.

Model Households

Implications:

earnings period.

Model Households

Implications:

earnings period.

Model Households

Implications:

earnings period.

Model Households

Implications:

earnings period.

Model Households

Implications:

earnings period.

Model Households

Implications:

earnings period.

Model Technology

Technology

Production function with limited substitutability between male and

female labor:

Yt = AtKαt

θ(LFt )ρ + (1− θ)(LMt )ρ

1−α

Aggregate labor supply is sum of households’ e�iciency units of labor.

Capital depreciates at constant rate δ.

Productivity At grows at constant rate γ.

Model Technology

Technology

female labor:

Yt = AtKαt

1−α

Model Technology

Technology

female labor:

Yt = AtKαt

1−α

Model Technology

Technology

female labor:

Yt = AtKαt

1−α

Model Government

Government

The tax function:

Tt(Il, Ik) = τl,tmax {Il − ξt, 0} + τk,tIk + τLS,t

The government budget constraint is:

Gt+wmt LD

t +(1+ rt)Bt = Bt+1+

Pt−s

Tt(It−s,s, rt at−s,s) dF (σx)

Model Government

Government

The tax function:

Tt(Il, Ik) = τl,tmax {Il − ξt, 0} + τk,tIk + τLS,t

The government budget constraint is:

Gt+wmt LD

t +(1+ rt)Bt = Bt+1+

Pt−s

Tt(It−s,s, rt at−s,s) dF (σx)

Model Equilibrium

Market Clearing

The market-clearing condition for capital:

Kt +Bt =

Pt−s

∫ ∞

at−s,s dF (σx)

The market-clearing condition for male labor:

Lmt + LDt =R∑

Pt−s

∫ ∞

emt−s,s dF (σx)

The market-clearing condition for female labor:

Pt−s

∫ ∞

eft−s,s lt−s,s dF (σx)

Model Equilibrium

Market Clearing

Kt +Bt =

Pt−s

∫ ∞

at−s,s dF (σx)

Lmt + LDt =R∑

Pt−s

∫ ∞

emt−s,s dF (σx)

Pt−s

∫ ∞

Model Equilibrium

Market Clearing

Kt +Bt =

Pt−s

∫ ∞

at−s,s dF (σx)

Lmt + LDt =R∑

Pt−s

∫ ∞

emt−s,s dF (σx)

Pt−s

∫ ∞

�antitative Analysis

The�antitative Exercise

The model is calibrated to a balanced growth path:

population, output, capital and consumption are all growing at aconstant rate.

World War II is modeled as an unexpected shock.

The model converges to a new balanced growth path.

The War Shock

We model World War II as an unexpected shock, consisting of:

1 The government dra�s men during the war: LDt = 0 before and a�er the

war and LDt > 0 during the war.

2 A permanent increase in taxes and in government debt.

3 A “patriotism” shock that increases female labor supply during the war:xWt,j = 0 before and a�er the war and xW

t,j = x̄W > 0 during the war.

The War Shock

Rosie the Riveter

(a) J. Howard Miller for the Westinghouse Company’s

War Production Coordinating Commi�ee

(b) Norman Rockwell for the cover of the Saturday

Evening Post, May 20, 1943

Calibration I

Overall Strategy:

Match technology to U.S. long-run growth observations.

Match fertility rate, female labor force participation, experienceaccumulation, and relative female wages to U.S. data in 1940.

Use the cross-state evidence to pin down the preference parameters thatgovern fertility and labor supply.

This implies that the quantitative results from the model do not provideindependent evidence on the magnitude of the reaction of fertility to thewar shock.

Calibration I

Overall Strategy:

Calibration I

Overall Strategy:

Calibration I

Overall Strategy:

Calibration I

Overall Strategy:

Calibration II

The added value of the quantitative analysis.

Makes explicit the causal connection between the war and the rise infertility.

Assesses the implications of the theory for changes in female laborsupply (which are not constrained by the calibration).

Assesses the implications of the theory for the timing of the rise and fallin fertility.

Enables us to carry out counterfactual experiments:

The role of labor market experience.

The relative importance of fiscal change.

Calibration II

�antitative Analysis results

Cohort Fertility Rate

1910 1920 1930 1940 1950

Year of Birth

Total Fertility Rate

1940 1950 1960 1970

Average Age at First Birth

1940 1950 1960 1970−2

−1.5

−0.5

Labor Force Participation of Young Women

1940 1950 1960 1970−0.15

−0.1

−0.05

0−32

Labor Force Participation – Goldin 1991 vs. our Model

Goldin (1991) documents that WWII entrants made up 25.6 percent of

the female labor force in 1951.

In our simulation, WWII entrants make up 22.8 percent of the female

labor force in 1951.

Goldin (1991) also documents that more than half of wartime entrants

le� the labor force before 1951.

This is also true in our simulation.

Females Relative Wage

1940 1950 1960 1970−0.04

−0.03

−0.02

−0.01

Cohort Fertility Rate – Matched Wages

1910 1920 1930 1940 1950

Year of Birth

Baseline

Matched Wage Gap

Cohort Fertility Rate – With Experience

1910 1920 1930 1940 1950

Year of Birth

Baseline

No Experience Accumulation

The Labor Supply Channel versus the Fiscal Channel

1910 1920 1930 1940 1950

Year of Birth

Baseline

No Fiscal Changes

International Evidence - Baby Boom in other countries

The Baby Boom in Other Countries

Most industrialized countries experienced a post-war baby boom.

Size and duration of boom varies substantially.

Compare two groups:

Countries with similar war experience to U.S.:Canada, Australia, New Zealand.

Neutral countries:Sweden, Switzerland, Portugal, Spain, Ireland.

Compare two groups:

The Baby Boom in Countries Similar to U.S.

1910 1920 1930 1940 1950 1960

CompletedFertility

Year of Birth

United States

Australia

New Zealand

Canada

The Baby Boom in the Neutral Countries

1910 1920 1930 1940 1950 1960

CompletedFertility

Year of Birth

United States

Sweden

Switzerland

Portugal

Ireland

Summary

If labor supply is persistent, one-time demand shock can lead to

long-lived, asymmetric e�ects on younger and older workers.

World War II was a huge demand shock for female labor.

�alitatively, cohort-specific participation rates, wages, fertility, and

the timing of births behave as in data a�er such a shock.

�antitative exercise suggests that our mechanism can account for a

major part of the baby boom and baby bust.

Summary

Thank you!

Why WWII?

Male Military Personnel on Active Duty as % of Male Population aged 15-64

1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970

The Baby Boom and World War II: A Macroeconomic Analysis · technology revolution.” (But see...

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