Dual Opportunity Cost of Childcare and the Low Fertility Trap∗

This paper develops a model wherein labor income is affected by work experience; further, it analyzes how the fertility rate is determined. In the case where the wage rate is affected through on-the-job training (OJT) or work experience, the fertility rate converges to a low level or continues to increase. Moreover, this paper demonstrates the effects of two childcare support policies. A childcare allowance for children (direct child payment policy) always boosts the fertility rate but decreases the labor participation rate. On the contrary, an infrastructure improvement for childcare, such as building a nursery school, increases not only the fertility rate but also the labor participation rate.