Fertility and female labor supply in rural China

Economic reform has brought many changes to China’s rural economy in the past two decades, as reflected in a combination of rapid economic growth, rural industrialization, structural change, and sharp reductions in fertility. This paper explores the impact of China’s “one-child policy” on female work patterns through its possible effects on fertility. Early studies that took fertility behavior to be exogenous to female labor supply tended to find that fertility has a negative impact on female labor supply. This ignores a potential selection problem inherent in the estimation of the fertility-female labor supply relation, namely, that women who prefer to work may also desire fewer children. I use the instrumental variable method identifying variables that correlate with fertility but have no direct impact on labor supply to resolve this problem. Two instrumental variables, local family-planning rules and the sex of the first-born child, are identified. Using the sex of the first-born child as an instrument, I find that the negative correlation that exists between fertility and labor supply in the baseline OLS estimation disappears, suggesting that the negative correlation between fertility and female labor supply decisions is a product of sorting