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Female labour force participation and fertility in Croatia – what causes what?

One of the most debated issues in demography and labour economics has been whether the female labour force participation causes a lower fertility rate or vice versa. It has been generally argued that a negative association between these two variables is an evidence for the incompatibility of rearing children and staying in the workforce in contemporary society, where the place of work and home are in most cases spatially separated. Decreasing fertility is thus associated with the increasing employment of women and their rising employment is associated with falling fertility as well. It remains unclear whether these types of relationships are causal in one direction or the other. The question that also arose is whether there is any causal relationship at all. It is not uncommon in economics that variables often reflect their own past behavior, reflecting causality thus. This study applies Granger causality test to examine the relationship between female labour force participation rates and fertility rates for Croatia using annual data from 1961 to 2004. It has been persuasively argued that the declining fertility is closely associated with the increasing number of women who receive a higher education. For this reason the paper will also examine the role of education on female labour force participation and fertility as well. The causality results were often found to be highly sensitive to model specification (Cheng, 1999). Bivariate causality tests have fallen out of favor because causality tests are obviously extremely sensitive to omitted variables. So we used not only a bivariate but also a multivariate model to examine the Granger causality between fertility, female labor force participation and higher education of women. The results of the Granger causality test showed causality among female labour force participation and total fertility rate, and among higher education of women and total fertility rate. We have not found causality between higher education of women and female labour force participation. The results revealed causal relation between higher education and fertility in Croatia. It can be stated that higher education of women Granger cause total fertility rate in Croatia. Nevertheless, it seemed from the regression analysis that education exerts a great influence on female labour participation than on fertility. But from the Granger causality test we can not say that causality among female labour force participation and higher education exist. Probably if we separated short and log run causality we could possibly find causality among those two variables but this is behind the scope of this paper and we leave this for some future studies. In this paper we applied recent econometric times series techniques to test for causality between fertility and female employment in Croatia from 1961 to 2004. We believe that higher education of women affect their fertility behavior, therefore, this paper adapts a multivariate rather than a bivariate model to examine the Granger causality between fertility, female labour participation, and women’ s higher education in Croatia. Our study is grounded in economic theory of fertility which emphasis negative association between female labor force participation and fertility. We modeled fertility as a function of female labor force participation and women’ s higher education, and female labour force participation as a function of total fertility rate and women’ s higher education. Results of Granger causality test showed that female labour force participation negatively Granger-causes total fertility rate, but not the opposite. If female labour force participation negatively Granger-causes fertility rates this provides support for policies such as paid maternity leave designed to encourage more working women to have children. The results showed that the declining fertility is closely associated with increasing number of women who receive a higher education. Also, higher education of women negatively Granger-causes total fertility rate in Croatia, not the opposite, what is consistent with the results of the regression analysis. The results also indicate that women’ s higher education is statistically significant and positively related to female labour force participation rate. However, Granger causality tests performed on the same data found that this conclusion is not completely accurate, and that causality does not exist. We are aware of shortcomings of our study, but due to the fact that this is the first causality analysis concerning this issue further research and improvement of this paper in light of new findings in time series econometric is necessary. In addition, we believe that other variables (namely sociological and psychological variables) are also very important and significant determinants of the fertility and female labour force participation, but appropriate time-series data for these variables seem not to be available.

fertility; female labour force participation; education level; time series; Croatia

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