Socioeconomic status permanent income and fertility: a latent variable approach.

Regardless of the specific underlying theoretical model it is safe to say that most studies of the determinants of childbearing focus on or control for the role of socioeconomic factors. In this paper we examine how permanent income one of several components of SES relates to fertility in developing countries and also pay attention to the role of other socioeconomic factors. Given that we cannot directly measure permanent income we employ a latent variable approach to studying its impact on fertility. We compare our results to the more common practice of using a proxy variable to measure permanent income and thereby investigate the consequences of not accounting for the measurement error that is inherent in proxies. Using micro survey data from Ghana and Peru we find that permanent income has a large negative influence on fertility and that research must take the latent nature of permanent income into account to uncover its influence. Our results also show that controlling for measurement error in the proxies of permanent income can lead to substantial changes in the estimated effects of control variables. Finally we examine which of the common proxies for permanent income most closely capture the concept. Though our focus is on childbearing our results have implications beyond this specific dependent variable providing evidence on the sensitivity of microanalyses to the treatment of long-term economic status. (authors)