How Does Adolescent Fertility Affect the Human Capital and Wages of Young Women?

The consequences of teen childbearing for the future well-being of young women remain controversial. In this paper, we model and estimate the relationship between early childbearing and human capital investment, and its effect on wages in early adulthood. Taking advantage of a large set of potential instruments for fertility—principally stateand county-level indicators of the costs of fertility and fertility control—we use instrumental variables procedures to generate unbiased estimates of the effects of early fertility on education and work experience, and the effects of these outcomes on adult wages. For both black and white women, adolescent fertility substantially reduces years of formal education and teenage work experience. White teenage mothers also obtain less early adult work experience than young women who delay childbearing. We also find that, through these human capital effects, teenage childbearing has a significant effect on a young woman’s market wage at age 25. Our results, unlike those of recent “revisionist” studies, suggest that public policies that reduce teenage childbearing are likely to have positive effects on the economic well-being of many young mothers and their families. How Does Adolescent Fertility Affect the Human Capital and Wages of Young Women? INTRODUCTION The human capital young women bring to the market is a major determinant of their earnings capacity. It seems reasonable that the presence of young children, with their need for care, will conflict with the human capital investment activities typical of adolescence and early adulthood—completing high school, attending college or obtaining other post-secondary education and training, and obtaining early work experience—by raising the costs of and possibly reducing the returns to time spent in investment. If reductions in these early investments occur, they are likely to have adverse long-term consequences for the wages, earnings, and employability of the mother. Reduced earnings will have substantial negative effects on the total income and, hence, economic well-being of young mothers and their families, both because the contribution of young married women’s earnings to total family income is substantial and increasing (Dechter and Smock, 1994) and because a young mother is likely to be single for several years when her children are young. In 1994, more than three-quarters of teen births were nonmarital (Child Trends, 1996), and divorce rates for very young married couples are high. Lower earnings and the need for child care also make long-term dependence on government aid a more likely outcome for adolescent mothers. Despite a sizable literature on how teenage childbearing affects educational attainment (see Klepinger, Lundberg and Plotnick, 1995a, and the references therein), research on how it affects experience and wages is relatively meager. Since these matters are central to the scholarly and public policy debates about adolescent childbearing, this study estimates the relationships between teenage childbearing and human capital accumulation as measured by years of schooling, work experience as a teenager, and work experience as a young adult. It then considers the implications of these relationships 2 for the wages that young women can expect to earn. Teenage fertility is allowed to affect wages in two ways: by reducing human capital accumulation and by affecting the rate of return to these investments. We develop a life-cycle model of adolescent choices about fertility and human capital acquisition that underlies the empirical analysis. The model recognizes that the adolescent childbearing decision is endogenous in models of human capital investment and wage determination and suggests an identification strategy, in that factors affecting the costs of fertility control should affect human capital decisions only through realized fertility. We then specify instrumental variables models of the effects of early fertility on education and work experience, and of the effects of these outcomes on adult wages. Stateand county-level indicators of abortion and family planning facilities and policies are appended to our sample of young women from the National Longitudinal Survey of Youth (NLSY) to provide a rich set of potential instruments for fertility. A conservative policy for choosing an instrument set in the presence of a large set of potential instruments is suggested, and we follow a mechanical, stepwise procedure to exclude instruments that are uncorrelated with the endogenous regressor variables, or that cause the model to fail a test for overidentifying restrictions. With this new application of instrumental variables, we fail to reject the conventional wisdom that teenage childbearing has substantial effects on future labor market opportunities. These results are different from, and usefully supplement, the largely negative results of other recent studies based on the comparison of selected subsamples. RESEARCH ON THE HUMAN CAPITAL AND WAGE EFFECTS OF ADOLESCENT FERTILITY Education Early research provided strong evidence for the expected negative effects of teenage childbearing on educational attainment. Waite and Moore’s (1978) pathbreaking paper reports large