Can subsidies to permanent employment change fertility decisions?

Abstract

I examine the causal effect of incentives to permanent employment on fertility by exploiting exogenous variation in subsidies given by the Spanish local authorities to employers converting temporary jobs into permanent ones. The amount of the subsidy varies across regions, in the age and gender of the employees whose contracts are converted, and within these three dimensions over time. Using administrative individual-level panel data, I show that subsidies to permanent employment have a positive impact on the probability of entering parenthood for male employees but not for female employees. In contrast, subsidies increase the likelihood of having a second child for both male and female workers. I also find that the effect of subsidies on fertility is lower in magnitude for individuals who have a high opportunity cost of having a child, such as young, highly educated and non-cohabiting individuals. Based on a different aggregate dataset at the municipality level, I replicate the findings from the main analysis and quantify the incidence of subsidies to permanent employment for the Spanish population, which raised fertility by 1.43% at a cost of 18,964 euros per child born.