The Effect of Fertility on Female Labor Supply in a Labor Market With Extensive Informality

Abstract

This paper presents new evidence on the causal link between fertility and female labor supply by focusing on how informal employment interacts with maternal labor supply. We employ an IV strategy based on an unused data source for twin births in Turkey|a large middle-income country with extensive labor informality. We find that, following the first birth, female labor supply declines significantly and mothers who drop out of labor force are mostly the informally employed ones. This is contrary to the perception that informal jobs might be easier to sustain during motherhood as they are more flexible. Following further increases in family size, formally employed mothers start dropping out of labor force and their hours of work also decline. Higher fertility also leads to lower wages and lower job search intensity among mothers. We document substantial differences between maternal versus paternal labor supply in response to changes in family size. Unlike mothers, fathers increase their labor supply, which mostly comes from elevated informal employment|possibly due to a decline in their reservation wages. As a result, wages decline, hours of work increase, and job search activity shifts from formal to informal search methods for fathers. These results suggest that higher fertility might be associated with increased vulnerabilities and high labor income risks in countries with pervasive labor informality. Our estimates are robust to using alternative IV specifications based on gender composition of siblings.