Does a relationship between fertility and labor participation of women really exist? Perspectives from time series analysis

Abstract

The purpose of this study is to revalidate the relationship between total fertility rate (TFR) and labor female participation rate using time series data in Japan. The discussion about the positive correlation between female labor participation and TFR continues, and there is a possibility that this positive relationship is spurious. Considering endogeneity of the two variables, it could be pointed out that a potential variable such as female wage might be the true cause affecting both these variables. The female wage plays an important role in this framework of TFR and labor market of women. Thus, wage is the third variable that has an influence on both the TFR and labor participation rate. From the result of a structural VAR model analysis, female wage has a negative impact on both TFR and labor participation rate simultaneously. In Japan, from the early 1990s, the government implemented various policies to improve fertility rate. To confirm the effectiveness of government policies in improving the TFR, we added policy variable to the structural VAR model and found that government policies have a strong positive impact on the TFR. It could be argued that these policies improve the rather incompatible situation of rearing a child while simultaneously providing labor.