Ziwei's Working Papers

1. Ziwei Rao and Yi Zhang, “Children or Work? The Impact of Fertility on Old-age Labour Supply”. (Link)

RQ: Does having more children, potentially as old-age security, save elder parents from “working until you drop”?

Abstract: In this study, we examine the impact of child quantity and gender on the labor supply of older parents in China, specifically in the context of developing countries where working until physically incapable is a widespread self-insurance strategy. Utilizing an instrumental variable approach that leverages regional family planning policy variations and firstborn child gender, we address potential endogeneity concerns in fertility and child gender composition. Our findings indicate that an additional child reduces the likelihood of parents working at post-retirement ages by 9.9 percentage points, with a more pronounced effect among rural parents and those receiving low pension benefits. Furthermore, having more sons further decreases labor supply compared to having more daughters, given the same number of children. We uncover evidence supporting the “old-age support” mechanism, wherein financial contributions and informal care from children increase, while lifetime labor supply and accumulated wealth decrease. We do not find evidence for adverse impact of fertility on parents’ health or their capacity to work. Having more children can essentially compensate the wage loss due to working less. Our results imply that policies aiming at reducing fertility might inadvertently undermine the well-being of older individuals, especially those who lack sufficient means of support, by forcing them to continue working into poor health during their old age.

Presented at: Annual Meeting of Society of the Economics of the Household (SEHO), Annual Conference of the European Society for Population Economics (ESPE), Universita Ca’ Foscari – University of Groningen exchange seminar, 2022; German Economic Association (VfS) Annual Conference, European Association of Labour Economics Annual Conference (EALE), Pension Day of Network for Studies on Pensions, Aging and Retirement (Netspar), Leiden University, SOM PhD conference, 2021; EEF brownbag seminar, 2020.

2. Ziwei Rao, Max Groneck, and Rob Alessie, “Should I Stay or Should I Go? Intergenerational Transfers and Residential Choice: Evidence from China”. (Link)

RQ: Do early-life transfers from the parent to the child influence the location decision of the child and, hence, the potential caregiving at older ages?

Abstract: We study the impact of parental transfers to their children in early life on the child's support to the parents at older ages either in time or with money. We conjecture that the type of transfer from the parents has an impact on what kind of help they receive from their children. Using data from the China Health and Retirement Longitudinal Study (CHARLS) we find that transfers in children's education are associated with higher financial help at older ages. In contrast, transfers to support the children's marriage are positively linked with time support, such as more visits, from children to their parents. The children's residential decisions are identified as an important mechanism: transfers into education tend to let children move further away whereas marital transfers are associated with children staying closer to one's parents.

Presented at: Annual Congress of European Economics Association (EEA) (virtual), New Paper Session of the Royal Dutch Economic Association (virtual), 2020; Pension Day of Network for Studies on Pensions, Aging and Retirement (Netspar), EEF & GEM PhD Bootcamp seminar, 2019; SOM PhD conference, 2018. Accepted but canceled due to COVID-19: Annual Conference of the European Society for Population Economics (ESPE), Symposium of Junior Researchers of Royal Economic Society (RES), Annual Meeting of Society of the Economics of the Household (SEHO).

3. Ziwei Rao, Xiaobing Wang, and Guochang Zhao, “Trapped by Good Years – The Economic Impact of Weather Shocks”.

RQ: How do rural families fare economically under weather risks with migration responses? Is good weather necessarily a good thing for the total household income?

Abstract: This paper investigates the effect of weather shocks on income among Chinese rural households and emphasizes the role of families’ migration responses. I use household panel data from National Fixed Point survey merged with meteorological weather information at the village level. Results from a fixed effects model show a negative link between household total income and precipitation. Studying income diversification, I find a greater drop in migration income that surpasses the gains from farming following good years with more water. Labor allocation analysis further supports the potential explanation and shows that labor is reallocated from migration to agricultural work in good weather. Good years may trap rural residents in low-paying agricultural work and lead to an overall worse outcome for the family. My findings highlight a novel negative aspect of good weather shocks and suggest facilitation of migration to improve the wellbeing of rural households under climate change.

4. Ziwei Rao, Mikko Myrskylä, Julia Hellstrand, Sampo Lappo, Angelo Lorenti, Jessica Nisen, and Heikki Tikanmäki, “Declining Fertility, Human Capital Investment, and Economic Sustainability”. (Link)

RQ: To what extent could investments in human capital offset the adverse economic impact of low fertility on pension sustainability?

Abstract: Future fertility is a key input when charting the sustainability of social security systems, and declining fertility is often expected to put pressure on economic indicators such as pension burden. Such expectations are based on a narrow view of the impact of fertility on the economy, focusing on age structure. Dynamic impacts - for instance, the potential for increased human capital of smaller cohorts - are mostly ignored. We use a dynamic longitudinal microsimulation model to explore to what extent investments in human capital could offset the adverse economic impact of low fertility. We implement our model in the Finnish context, which is a particularly interesting case as Finland is the fastest-ageing European country and experienced dramatic fertility declines and stagnant education levels in the 2020s. We find that an ambitious but simple human capital investment strategy that keeps the total investment constant despite declining cohort size, thereby increasing per-capita investment, can offset the negative impact of a smaller labor force on pension burden. Human capital investment not only reduces pension burden, but also increases working years, pension income, retirement years, and longevity. Policies focusing on human capital investment are likely to be a viable strategy to maintain economic sustainability.

5. Ziwei Rao, “Evaluating the Impact of Finnish Comprehensive School Reform on Fertility”.

RQ: Could education policy unexpectedly lead to fertility consequences?

Abstract: This project evaluates the fertility responses to a Finnish comprehensive school reform in the 1970s using Finnish register data. Adopting Difference in Difference methods proposed by Callaway and Sant'Anna (2021), this study explores the heterogeneous dynamic impact of the reform and finds negative fertility consequences together with an elevated level of education. This paper provides evidence to the education-fertility nexus by showing that education policies that target at changing the education tracking system and improving intergenerational mobility may unexpectedly shape the fertility landscape.

Presented at: Flux themed workshop on fertility, Helsinki; invited: INVEST seminar series on Intergenerational Inequality, Turku