Fertility, Human Capital, and Income: the Effects of China’s One-child Policy

Macroeconomic Dynamics

Jiajia Gu

Abstract

This paper studies the effects of China’s one-child policy on human capital and income. I build and calibrate a quantitative OLG model with intergenerational transfers. The model generates a quantity-quality trade-off, so a restriction on fertility leads to an increase in human capital, and higher human capital then contributes to higher individual income and welfare. Calibrating the model to match survey data on urban households, I find that the one-child policy increases the human capital of affected agents by about 47% relative to a counterfactual with no fertility restrictions. However, the effect on aggregate income is negative as the size of the labour force falls.