Human capital differences and fertility inequality: an analysis based on the substitutability and complementarity of educational investment factors

Abstract

China’s persistently low fertility is associated with fertility inequality, reflected in a U-shaped relationship between household human capital and fertility. We develop an overlapping-generations model showing that this pattern depends on the substitutability of educational inputs. When educational inputs are complementary, fertility is U-shaped in household human capital, with middle-human-capital households having the fewest children; when inputs are substitutable, the relationship is inverted U-shaped. Using China Family Panel Studies data, we find a robust U-shaped relationship between household human capital and fertility, significant complementarity among educational time, monetary investment, and household human capital in children’s human-capital formation, and similar patterns across eastern, central, and western China. Complementarity requires households to increase time and monetary inputs jointly, intensifying the quantity–quality trade-off, particularly for middle-human-capital households. Policies that enhance substitutability among educational inputs may therefore mitigate fertility inequality and raise aggregate fertility.