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The Paradox of Children and Life Satisfaction

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Abstract

Empirical analyses of the determinants of life satisfaction routinely include the number of children as one of the socio demographic controls, without explicitly considering that, for a given household income, more children imply a lower level of income per family member. The variable “number of children” then often attracts a negative or insignificant coefficient. Using data from the German Socio Economic Panel 1984–2007 we confirm that the sign of the coefficient for the variable “number of children in the household” is negative when introducing household income without correction for the number of members in a life satisfaction regression. On the contrary, when we equivalise income with the most commonly adopted equivalence scales, so eliminating the monetary cost of raising children, the impact of the variable is positive and significant when a high level of economies of scale is assumed. Our results however lead us to reject slope homogeneity as we find strong differences by gender and region. In particular, the positive effect of children on life satisfaction is stronger for males and East Germans. We interpret these subsample split results as driven by heterogeneous opportunity costs and cultural traits.

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Notes

  1. Di Tella et al. (2003) and Smith (2003) observe that children have stronger negative effect in the UK and the US than in Europe or Russia.

  2. This is the case for single parents (Frey and Stutzer 2000), divorced mothers (Schoon et al. 2005), poor families (Alesina et al. 2004 for the US), when the child is above 3 years (e.g. Shields and Price 2005) or requires extra care (Marks et al. 2002).

  3. The so called consumption based equivalence scales are estimated using cross section consumption data at the household level. However the identification of such scales, which exploits the relationships between cost functions and expenditure shares, requires very restrictive assumptions. A recent attempt at calculating a consumption based equivalence scale for Germany is in Wilke (2006).

  4. The research carried out by Burkhauser et al. (1996) suggests that the official German scale is not consistent with other measures of economies of scale for Germany or other countries. We refer to these authors for details.

  5. We also estimated the model using the old Oxford scale created by OECD in 1982 (assigning a value of 1 to the first household member, 0.7 to each additional adult and 0.5 to each child (age below 14)) and the ELES scale, obtained from consumption or expenditure data by estimating the system of demand equation for Germany by Merz et al. (1993). Results are omitted for reasons of space and available upon request.

  6. The data used in this paper was extracted using the Add-On package PanelWhiz for Stata®. PanelWhiz (http://www.PanelWhiz.eu) was written by Dr. John P. Haisken-DeNew (john@PanelWhiz.eu). See Haisken-DeNew J.P. and Hahn M. (2006) for details. The PanelWhiz generated DO file to retrieve the data used here is available from us upon request. Any data or computational errors in this paper are our own responsibility.

  7. In detail, for West German resident households (sample A only) we consider for the waves from 1984 to 2007 (with the exclusion of 1990-wave and 1993-wave because of missing variables needed to estimate our model), for East German resident households (sample C) we consider the waves from 1991 to 2007 (with the exclusion of 1993-wave because of missing variables needed to estimate our model).

  8. According to Federal Statistical Office (2009), in Germany since 2005 the fertility rates of women aged 30–40 have on average been even higher than those of women aged 20 to 30 years. In general, the women’s age at birth of the first child was 27.6 in 1990, 28.7 in 2000 and 30.0 in 2008. There are however important differences between fertility's behaviors in older (West) and newer Landers (East). In West Germany the average women’s age at birth of the first child was 28.6 in 1990, 29.3 in 2000 and 30.4 in 2008. In East the women’s age at birth of the first child was 25.1 in 1990, 27.7 in 2000 and 29.1 in 2008.

  9. We refer to the variables “Household typology, one digit” and “Household typology, two digits” retrieved from the GSOEP—xHGEN dataset (single-wave generated household data file).

  10. Following Ferrer-i-Carbonell et al. (2003) we included education level, employment status, having a saving account, presence of the partner in the household, annual working hours and house/apartment ownership and age categories among the explanatory variables for financial satisfaction.

  11. In our panel specification we include post tax household income, divided by the consumer price index provided by the official statistics of the CNEF which is computed differently for East and West Germany. We include also time dummies to capture socio economic trends for each wave of the survey. For more details see Grabka (2008).

  12. As is well known fixed effects may eliminate the problem of reverse causality and endogeneity with regard to time invariant characteristics (i.e. personality traits) which are likely to affect both the number of children and life satisfaction. However, FE cannot eliminate the problem of time varying omitted factors. .

  13. The Cross-National Equivalent File is created by Cornell University, in close cooperation with DIW-Berlin, ISER Essex and StatsCan-Ottawa, consisting of variables from the German SOEP, American PSID, Canadian SLID and British BHPS, based on common definitions. For detailed information refer to the standard Equivalent File documentation in Burkhauser et al. (2001). The codebooks are available at http://www.human.cornell.edu/che/PAM/Research/Centers-Programs.

  14. The tax burdens provided here are based upon updated and modified tax calculation routines developed by Schwarze. (2003). The tax burden includes income taxes and payroll taxes (health, unemployment, retirement insurance and nursing home insurance taxes).

  15. A detailed description of the variables used is available upon request by the authors.

  16. Van Praag ( 2007, p. 18) simply argues that “All these specifications amount to different specifications of the labeling system of the underlying indifference curves, but the indifference curves themselves are unchanged and are these indifference curves which are estimated, either by Ordered Probit, Logit or what else.”

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Authors and Affiliations

  1. Facoltà di Economia, Dipartimento di Economia e Istituzioni, Università di Roma Tor Vergata, Via Columbia 2, 00133, Rome, Italy

    Leonardo Becchetti, Elena Giachin Ricca & Alessandra Pelloni

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  1. Leonardo Becchetti
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  2. Elena Giachin Ricca
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  3. Alessandra Pelloni
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Correspondence to Leonardo Becchetti.

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Becchetti, L., Giachin Ricca, E. & Pelloni, A. The Paradox of Children and Life Satisfaction. Soc Indic Res 111, 725–751 (2013). https://doi.org/10.1007/s11205-012-0031-y

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