MPIDR Working Paper

Does economic uncertainty have an impact on decisions to bear children? Evidence from Eastern Germany

Abstract

Economic agents routinely face various types of economic uncertainty. Seldom have these various forms of uncertainty manifested themselves more sharply than in the transition economies of Central and Eastern Europe. In East Germany, the transition was especially rapid and sharp since East Germany virtually over night made the transition from the Eastern European system to the market economy of Western Germany. Uncertainties increased and many institutional and behavioral adjustments took place in a concentrated period of time. Among the latter was a sharp fall in fertility rates, leading to a growing literature on the explanation for this decline. This paper focuses directly on the link between uncertainty and childbearing decisions and examines the link at the micro level. It develops a stylized overlapping generations model showing that the relationship between economic uncertainty and childbearing decisions is not necessarily monotonic, and hence that the aforementioned inverse relationship is merely a testable hypothesis. It then uses GSOEP data for 1992 and 1996 to estimate the nature of this relationship, and concludes that while this relationship was indeed negative for East German women during these two years, the nature of uncertainty affecting their childbearing decisions differed across the years.