Care or cash: how the relaxation of birth control policies reshaped grandparents’ labour supply

This study examines the effects of relaxed birth control policies on grandparents’ labour supply from both theoretical and empirical perspectives. We begin by constructing a simple theoretical framework, which reveals that changes in grandparents’ labour supply following such policy relaxation depend on the relative strength of two opposing mechanisms: intergenerational financial transfers and intergenerational time transfers. Using six waves (2010–2020) of the China Family Panel Studies (CFPS) and a difference-in-differences (DID) design exploiting the 2016 Universal Two-Child (UTC) policy, we find that easing fertility restrictions significantly increases grandparents’ labour supply. Heterogeneity analyses along intra-household responsibilities and external environmental factors provide empirical support for two theoretical mechanisms. Collectively, these findings suggest that the increase in grandparents’ labour supply is primarily driven by intergenerational financial transfer motives. Importantly, such behavioural adjustment occurs without compromising grandparents’ subjective welfare. This study suggests the potential complementarity between fertility policies and retirement schemes and underscores the importance of accounting for intergenerational linkages in policy design.