Babies on a Budget: How the Cost of Child-Rearing Affects Fertility in Japan

Abstract: This paper examines the relationship between child-rearing costs and fertility in Japan. Using panel data from the Japanese Panel Survey of Consumers, we investigate the issue through two distinct approaches. Firstly, we construct a proxy for expected child-rearing costs and attempt to find a link to the propensity of having children. Secondly, we draw on methodology from Kleven et al. (2019) to study impacts of children on labour market outcomes for men and women. Using our first approach, we find no significant effects of child-rearing costs on fertility, but results are limited, partly due to the low variation of our aggregated cost variable. Control variables for employment and earnings do yield significant results, showing that respondent employment raised fertility, while higher earnings lowered it. Using our second approach, we find significant and substantial negative effects on labour market outcomes for women but not for men. The effect on earnings for women compared to men is estimated at 35 percent. We argue for a link between impacts on labour market outcomes and the propensity to have children and conclude that steps should be taken to increase the compatibility of employment and child-rearing.