Fertility has become a big business in the U.S., with Americans spending up to $3 billion a year on treatments, drugs, and methods aimed at enabling couples to conceive. Discussions of modern infertility have focused on cultural factors like the rising average age of marriage and the influx of women in the workforce, with studies linking it to environmental and medical elements from trans fats to toxins in cleaning products.
But what about economics? Can fertility rates be linked to financial incentives (or disincentives) to have children? Economists Alma Cohen, Rajeev Dehejia, and Dmitri Romanov examine this question in their new working paper, “Do Financial Incentives Affect Fertility?” Using data from Israel’s Central Bureau of Statistics on the “fertility history and detailed individual controls for all married Israeli women with two or more children during the six-year period 1999-2005,” the researchers compared fertility rates to fluctuations in government child subsidies (a monthly allowance paid to families with children), controlling for changes in eligibility or coverage. Their findings are summarized as follows:
We find a significant positive effect on fertility, with the mean level of child subsidies producing a 7.8 percent increase in fertility. The positive effect of child subsidies on fertility is concentrated in the bottom half of the income distribution. It is present across all religious groups, including the ultra-Orthodox Jewish population whose religious principles forbid birth control and family planning. Using a differences-in-differences specification, we find that a large, unanticipated reduction in child subsidies that occurred in 2003 had a substantial negative impact on fertility. Overall, our results support the view that fertility responds to financial incentives and indicate that the child subsidy policies used in many countries can have a significant influence on incremental fertility decisions.
This conclusion could be big news for countries like France, Germany, and Sweden, which, in the face of lagging birthrates (a problem the U.S. doesn’t seem to be having), have adopted “explicitly pro-natalist policies” to reduce the costs of bearing children. As for the U.S., the study points to the often-overlooked idea that fertility rates may be less dependent on cultural and medical variables, and instead tied to something more basic: the actual cost of having children.
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The financial incentives in China and India are different since children are still key to old age income where Europe and the US have state and private pensions.
The equation is different in Europe and the US. Assuming the subsidy is monthly and not a lump sum, the incentive would allow some women to stay at home with their children. I don’t have data, but my observation is that my friends who are SAHM’s have more kids, on average, than the ones employed outside the home. (can’t say if the ones who stay home like kids more, or calculate their marginal cost of the next one is lower.)
Even employed mothers would plug the subsidy in to the equation: wages (plus subsidy)-(childcare, takeout, drycleaning, transportation) and could conclude that more kids was a good thing (assuming that the marginal subsidy is greater than the extra childcare or that childcare tax incentives were altered to keep that number positive.) I would guess that the reason the incentive works better in the lower income group is that lost wages are so low that staying home with the kids is the best option financially for those families.
I see a social problem implementing this in the US. You will see resistance to allowing the subsidy for unmarried women who don’t work outside the home. Also, childcare is so expensive the subsidy would have to be pretty big to incentivise employed women.
You mention fertility, but you really mean willingness to bear children. Financial incentives might make people more willing to bring children into their families, but they cannot and do not affect fertility. Linking these two things together doesn’t make any sense. Unless you are trying to make the case that financial incentives can affect medical conditions that cause infertility?????
@Guest:
As per the 2001 census, 72.22% of Indian people live in more than 550,000 villages.
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In 2003, the National Sample Survey Organisation (NSSO) of the Ministry of Statistics of the Government of India published in it’s report of the first ever “Situation Assessment Survey of Farmers” that the average household size of the Indian farmer is 5.5. I’m from India and believe me that that’s not much of a joint family.
@Justin James – People don’t, like, try to create ‘x’ number of progeny by ballparking…It doesn’t work like “Hey let’s make 5 kids, then at least 3 will make it and one of those will earnt a decent living to support us.” Not in India, at least. People don’t starve to death here anymore under normal conditions. I furnish some stats from the 2001 census to support my case.
Life expectancy at birth:
total population: 68.59 years
male: 66.28 years
female: 71.17 years
Infant mortality rate: total: 34.61 deaths/1,000 live births (2007 est.) female: 29.23 deaths/1,000 live births male: 39.42 deaths/1,000 live births
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@ World traveler – “…children are still key to old age income.” This is true. However, you must also take into consideration that over here in India, especially among the rising middle class (up to 30% from 10% in the past 20 years) kids are supported well into their education, i.e. even into grad school. Having a girl child is all the more expensive depending on what social caste you’re from, as this determines the dowry her parents pay to the grooms family, if any, at the time of the girl’s marriage, which may fall as soon as the legal age is reached (or before, depending on where you come from).
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There are several such considerations to be kept in mind while debating whether economic incentives alone drive fertility, and I might’ve missed something very important. But all I’m trying to say is that if economic incentives alone can explain tiny population changes in Israel, Australia or Singapore, why don’t they explain this:
Year Indian Population
1950 357,000,000
1960 443,000,000
1970 553,000,000
1980 684,000,000
1990 838,141,000
2000 1,004,591,054
2005 1,095,054,669
2007 1,129,866,154
I’m counting a lot on this having a lot more to do with low illiteracy rates and the economic incentives behind *those* rather than the more direct explanation offered in the article above.
The problem with trying to measure the effect of financial incentives on birth rates (at least in western nations where birth control is widely available), is that unlike many things, children can be anything from a luxury to an accident, depending on the situation of the parents.
I don’t think anyone does a crude calculus of having 10 to keep 5, but I imagine that the same educational deficit that leads (and results from) poverty and poor medical care for the kids also causes reduced use of birth control. In many countries where education is not free, the middle classes have fewer children to reduce tuition bills – but the infant mortality rate is also lower. One could argue that investment in educating a smaller number of children would still produce a return at old age.
(To adoptivemom: fertility is much easier to count than willingness. When I was in college, the polls of poor women suggested they would limit their fertility if they could get the means and/or cooperation from partners.)
The economy of the country is very much tied to the fertility of the country. Poverty stricken nations will often be populated with mothers that need to produce in order to maintain their way of life, for example, to maintain the number of farmhands available.
But as we see as these mothers become more educated and are able to get jobs outside of the home, the fertility drops significantly. More educated mothers would usually imply more educated daughters and the circle continues until the birthrates have dropped significantly. Well educated working women is the key to decreasing birthrates.
AND…Not only is religion a factor, but the degree of extremism in the religion is a factor whereas the more extreme versions of each and every religion will encourage more children, from Judaism to Christianity to Islam.
Its all a mixture of logical economic incentives and beliefs (note: the word logical was left off of the word beliefs)
As the article on lagging birthrates you linked to shows, the sharpest birthrate declines have been in Eastern Europe, where social supports to working mothers have vanished, not in Western European countries with strong social supports to working mothers. It’s the countries without those supports that have seen the lowest birthrates: Eastern Europe, Italy, Spain, Greece, and Japan. Faced with barriers to combining paid work and parenting, women there aren’t dropping out of the workforce. They’re having fewer children. But child payments don’t ease the barriers to combining work and parenting. So isn’t it a no-brainer that a better solution to Europe’s workforce shortfall is to help mothers stay in the workforce, providing more workers right off the bat and likely boosting the birthrate too?
So true! France is a perfect example especially for all of the Sicko fans out there. Government employees will visit the houses of new mothers to do their laundry or cook or help out however they are needed. France’s population growth after WWII increased more than anyone even expected and continues to be slightly higher than the rest of Europe.