Higher Inequality, Higher Education? The Changing Role of Differential Fertility

In this paper we propose and quantify a channel by which income inequality may yield a rise in growth through its effects on differential fertility. The conventional wisdom has been that, given the historically negative relationship between income and fertility, increasing inequality will tend to result in relatively more children being born to poorer households, and thus receiving less education. However, since 1980 there has been a stark rise in inequality with a simultaneous flattening of the relationship between fertility and income. We reconcile standard models with the empirical reality by arguing that greater inequality lowers the effective cost of childcare and home good substitutes for high income mothers. By outsourcing much of