Empirical essays on the effects of the economic cycle on human capital, health and fertility
21 November 2019
UAntwerp, Graduation Hall, Grauwzusters Cloister - Stadscampus, Lange Sint-Annastraat 7 - 2000 Antwerp (route: UAntwerpen, Stadscampus
Prof Sunčica Vujić, Prof Guido Erreygers
PhD defence Sofia Maier - Faculty of Business and Economics
The ongoing booms and busts which modern capitalist economies face can influence individual well-being and household decision-making in multiple ways. Economic choice models suggest that income and substitution effects involved in the demand for human capital, health and children make the effect of the economic cycle theoretically ambiguous. Therefore, whether counter- or pro-cyclical patterns dominate is an empirical question.
Unfortunately, after more than a hundred years of empirical inquiry into these topics, most of the evidence still refers to a limited set of rich western economies. This thesis provides empirical evidence on the effects of the economic cycle on human capital, health and fertility through four empirical essays, covering developed and developing countries, and combining national-, regional- and individual-level data. It also explores the mechanisms driving these patterns, the presence of asymmetries, heterogeneities and scarring effects.
Results suggest that households systematically adapt their demand for human capital, health and fertility in response to booms and busts, and that these patterns are heterogeneous across countries as well as by age, gender and socio-economic background. Human capital formation and health are counter-cyclical in high and some middle-income countries (paradoxically, they improve in recessions). By contrast, pro-cyclical patterns are observed in the poorest countries, mainly driven by children and women. Fertility rates are in general pro-cyclical, with an inverted U-shape pattern: middle-income countries show the strongest responses. These heterogeneities are in general consistent with the expected relative importance of opportunity cost (substitution effect) and ability-to-pay considerations (income effect) across these groups.
Policy implications are diverse. For low-income countries expanding safety nets –e.g. through the expansion of social security systems, access to credit and public services– could play a key role in alleviating the adverse effects of crises on human capital and health. This can also help smoothen the propagation of shocks. For middle- and high-income countries, where safety nets are stronger, governments face the challenge of preventing the negative side effects of booms on human capital and health through the design of labour policies and public services aimed at reconciling the expansion of jobs with investments in these non-monetary dimensions of well-being. By contrast, the pro-cyclicality of fertility suggests that the private costs of reproduction constitute an important burden to the household budget, and especially for women who interrupt their labour careers in periods of high opportunity costs. In this way, gender inequalities in labour markets tend to be reproduced, highlighting the importance of national care services and policies designed to reconcile work-life balance for both women and men.