Melissa Kearney, Professor of Economics, University of Maryland, presents, "The Cyclicality of Births and Babies' Health, Revisited: Evidence from Unemployment Insurance"
This paper revisits the cyclical nature of births and infant health and investigates to what extent the relationship between aggregate labor market conditions and birth outcomes is mitigated by unemployment insurance (UI). We introduce a novel empirical test of standard neoclassical models of fertility that directly tests the prediction of opposite-signed income and intertemporal substitution effects of business cycles by examining the interaction of the aggregate unemployment rate with a measure of potential income replacement from UI. Our results show that as UI benefit generosity reaches 100 percent income replacement, there is no effect of the unemployment rate on births. This implies that the well-documented cyclical nature of births is about access to liquidity. We also provide novel evidence that infant health is countercyclical based on timing of conception, but procyclical based on time in utero. The negative relationship between the in utero aggregate unemployment rate and infant health also disappears when potential UI replacement rates reach 100 percent. Our results imply that the social insurance provided by UI has a pro-natalist effect and improves the health and economic well-being of the next generation.