Essays in Education, Fertility, and the Welfare State

Abstract

In countries in the developed world, income inequality is increasing, while technological and societal changes open labour market opportunities for women. At the same time they are undergoing an important demographical transition with decreasing fertility and increasing population ageing. All these trends affect the decisions that different generations make over the life-cycle. In this thesis, I investigate the role that these trends play for education, fertility, and pensions.

In the second chapter of this thesis, I investigate how income inequality is affecting education attainment. An important difference between countries with low and high levels of social mobility is the extent of upward mobility of children from low income families. This is mainly explained by the probability of high school dropout. I develop a model with three levels of education in which children facing a credit constraint choose which level of education to attain. I find in an empirical exercise that in the U. S. the opportunity cost of education is more important in explaining the high school dropout rate of men than the return on education. The model and the empirical results imply that a policy that reduces the opportunity cost of education and is paid by higher taxation on graduates, reducing the return on education, could decrease dropout rates.

In the third chapter, I analyse the decline in fertility in Germany. Decomposing the decline in completed fertility in Germany of the cohorts of women born between 1930 and 1965, I observe two distinct stages: In the first stage the decline in fertility is due to a decrease in intensive fertility (number of children per women with at least one child), whereas in the second stage the decline is due to a decrease in extensive fertility (increase in childlessness). Based on an event study approach, I argue that there are high opportunity cost of having children for women in terms of working time independent of their education level. Based on these findings, I develop an overlapping generations model with childlessness and quantity/quality trade-off driven by the time cost of children. In a calibration exercise, this model is able to generate the decline in intensive fertility as well as the increase in childlessness that I observe in the data with an decrease in the gender wage gap.

The forth chapter of my thesis is a joint work with Gianko Michailidis on the effect of population ageing and income inequality on public education and pensions. We developed an overlapping generations model with public and private education, a pay-as-you-go pension system, endogenous fertility, and probabilistic voting on pensions and education spending. In this model, an increase in income inequality increases public education and pensions spending per enrolled student and retiree, respectively, and decreases the participation in public education and fertility. An increase in the share of retirees in the economy decreases the per student spending on public education and pensions, while decreasing the participation in public education and the fertility rate. Empirical evidences from OECD countries confirm our theoretical predictions regarding education spending.