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

Type Working Paper
Title Socioeconomic status, permanent income, and fertility: a latent variable approach
Publication (Day/Month/Year) 2002
Page numbers 1-46
The role of socioeconomic status (SES) is central in sociological studies of almost
any outcome, and sociologists have become increasingly interested in the long-term or permanent income aspect of SES. In this paper we examine how the components of SES, including permanent income, relate to fertility in developing countries. Permanent income is an abstract concept that is impossible to measure directly. Therefore, 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 for permanent income. 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 in order to uncover that influence. Our results also suggest that when we take into account the measurement error of the proxies for permanent income, the estimates of the effects of some of the control variables are markedly different. Finally, we examine which of the common proxies used to measure permanent income most reliably capture the concept. Though our focus is on childbearing, our results have implications beyond this specific dependent variable, providing researchers with a sense of the sensitivity of microanalyses to the treatment of long-term economic status.

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