Measuring cost of children using equivalence scale on Japanese panel data

Abstract

In this study, the cost of child rearing is estimated in order to examine the hypothesis that the recent fertility decline in Japan has been caused by increases in the cost of child rearing. Although there are various ways to estimate the cost of children, the research uses an equivalence scale. The results of the traditional Rothbarth estimation showed that the cost of child raising in Japan is not very high. However, the results of the equivalence scale estimation using ‘satisfaction for the income’ as the utility measure showed that the cost of child raising is much higher than calculated in the Rothbarth model. The latter subjective scale approach is now said to have more advantages. Thus, the cost of child raising in Japan is much higher than was believed to be the case, and this could be one of the reasons for the decline in the fertility rate in Japan.

Acknowledgements

For their helpful advice, I thank Noriyuki Takayama, Yukinobu Kitamura, Cheng Hsiao, Naohito Abe, Tokuo Iwaisako, Nobuko Nagase, Terukazu Suruga, Hiroshi Yoshida, Hiroshi Ogawa, and participants of the seminar of the Project of Intergenerational Equity at Hitotsubashi University, 2003 Fall Conference of the Japan Economic Association, Macro-lunch seminar at Hitotsubashi University, seminars at the University of Tsukuba, the Institute for the Research on Household Economics, and the Labor Market Research Committee. The study is part of the academic Project on Intergenerational Equity (PIE), funded by a scientific grant from Japan's Ministry of Education, Culture, Sports, Science and Technology (grant number 603). Also, this research is funded by a scientific grant B for young researchers from Japan's Ministry of Education, Culture, Sports, Science and Technology.

Notes

¹ The data on the satisfaction with income are available only from the third year of the survey. Therefore, this estimation was made with 5-year panel data.

² In evaluating this result, one needs to pay attention to the fact that the Rothbarth model tends to underestimate the cost while the Engel model tends to overestimate the cost. However, the income satisfaction measure shows a higher cost than either the Japanese Rothbarth or Engel model estimates.