Does Fertility Respond to Economic Incentives? and does it ... · Introduction The decline in...

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Does Fertility Respond to Economic Incentives?and does it matter?

David de la Croix

http://www.de-la-croix.beUniv. cath. Louvain (UCL)

Poznan, May 2015

Introduction The decline in fertility Fertility reacts to incentives Does it matter

What does govern fertility behavior?

ex: having kids or not, number of kids, with whom, at which age ...

Two competing views:

Incentives (choice - objective and constraints)

Norms (culture, social pressure, ...)

Giving an answer to this question matters for effectiveness of policy2 / 42

Demographic Economics

Economic incentives →FertilityMortalityMigration

→ Economic PerformanceGrowth and Inequality

↑ ↓

Migration clearly depends on wages abroad vs wages home

Mortality depends on wealth of people and medical effectiveness

But what about fertility ?

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Facts & Explanations of the secular decline in fertility

Arguments in favor of fertility as reacting to economic incentives

Policy consequences for inequality, fiscal policy, education

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Facts about Fertility

Fact 1: In all species, when resources are more abundant,reproduction increases. This is true for plants,animals, and humans before the industrial revolution.

Fact 2: Before the industrial revolution, the rich had moresurviving children than the poor.

Fact 3: The transition from stagnation to economic growth isaccompanied by a demographic transition from highto low fertility.

Fact 4: Now, both within and across countries, rich andeducated mothers have less children than poor andunskilled ones.

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The demographic transition

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The demographic transition in Poland

1600 1650 1700 1750 1800 1850 1900 1950 2000

CBR Gdansk CDR Gdansk

CBR Russian occupation CDR Russian occupation

CBR Austrian occupation CDR Austrian occupation

CBR Prussian occupation CDR Prussian occupation

CBR Poland CDR Poland

Thanks: Michal Burzynski 7 / 42

Reasons for the decline in fertility (1)

Demographers would stress:

Contraception: Better contraception technology. But how large isthe gap between desired and effective fertility ?

Mortality: Lower child mortality may imply lower birth, to getthe same number of surviving children(child-replacement hypothesis)

Culture: Change in cultural norms (drops in fertility acrossEurope often followed linguistic and religiouscontours)

Gender: Women emancipation

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Reasons for the decline in fertility (2)

Economists would stress:

Mortality: Same mechanism as demographers

Old-age support: Children as a way to save resources for the futureand to obtain some support when old. Declines withpension systems.

Ban on child labor: Reduces the return from children

Parents’ education: Opportunity cost of child-rearing time is highfor high income/education mothers

Return to education: Industrial revolution accompanied by a rise inthe skill premium (Galor).

Gender empowerment: Together with unequal share of cost ofchildrearing

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Best Explanation difficult to identify. ex: US

1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

Inverse of total fertility rate (white)

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Best Explanation difficult to identify

1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

Gross domestic product per capita

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1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

Average years of education per person employed

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1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

Infant survival rate (white)

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1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

Infant survival rate (white)

Contraception effectiveness (annual success rate)

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Quality - Quantity Tradeoff Model

Most economic models are based on the QQ model

In the budget constraint:Total cost of children = number × spending on quality(education+health)

When number of children (quantity) becomes too costly, or ifquality becomes more profitableparents may want to invest more in the quality of a small numberof children. Becker.

Also across species in natural world (elephant vs invertebrates).

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Baby elephant vs tadpoles

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QQ tradeoff

Education spending per child (in logs) vs # children per parent

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Differential fertility

QQ account for fertility over time in the demographic transition,but also for fertility rates in the cross-section of a given country.

Since for educated women the opportunity cost of child-rearingtime is high, they prefer to invest in the “quality” of a smallnumber of children.

For less educated women, the opportunity cost of raisingchildren is low, while providing education is expensive relative totheir income. They would therefore prefer to have many children,but invest little in the education of each child.

Look at fertility by education level of parents may help to identifythe important determinants of fertility

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Differential fertility in Poland

from Zuzanna Brzozowska (2013)

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The decline in fertility together with differential fertility inthe US

from Jones and Tertilt (2007)

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Interaction between Gender Power and ChildRearing Costs

Assumption:

If fertility results from a bargaining within the family

it will depend on

• women’s rights (important for outside option - case ofdisagreement)

• women’s education (opportunity cost of childrearing increases)

• sharing the tasks within the household

If women are educated but task sharing remains very unequal,they will disagree to have many children

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Do people really choose their number of children ??

Surveys

Common Sense

History

Childlessness

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1. Surveys

1. Surveys (Pritchett 1994)

Ninety percent of the differences across countries in total fertilityrates are accounted for solely by differences in women’s reporteddesired fertility.

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% women with unwanted birth (Baudin, de la Croix,Gobbi, 2015)

Built from Demographic & Health Survey - married womenAssumption: a woman does not control her fertility if:

• (completed fertility − ideal fertility) > 1• she believes husband did not want more children than her

0 4 8 12 16

years of schooling

Rwanda

Senegal

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2. Common sense

Having one more child is a huge investment

Similar in cost to buying a small house (Cigno)25 / 42

Good cost + time cost

Cumulative hours of child care that the wife devotes: (from timeuse survey, USA)1 kid family: 9.2742 kids family: 12.9463 kids family: 18.389

+ Husbands time

From Cordoba - Ripoll (2015):

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3. Historical data

Look at forerunners in fertility decline

Fertility started to decline in some European cities as early as inthe 18th century

Because some incentives changed in cities?

Historical data - Rouen (Bardet)notables merchants craftsmen workmen

Fertility per women1670-99 6.23 6.53 7.19 7.211700-29 4.87 5.51 6.29 6.061730-59 4.84 4.81 5.48 5.671760-92 3.77 3.28 4.84 4.84

Similar trends in Geneva (1670-1820)

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4. Childlessness

There is a risk for a couple to be sterile - between 2% and 4%

Observed % of childless couples is usually above this level.

On recent data, the childlessness rate increases sharply witheducation of the mother

Makes sense as opportunity cost of kids increase with education

Part of it is also delayed fertility (for economic reasons) ending insterility

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Childlessness in the US, Census 1990, women aged 45+

from Baudin, de la Croix, Gobbi, AER, 2015:

1 2 3 4 5 6 7 8 9 10 11 12

singles

married

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Does it matter if fertility depends on incentives?

Policy implications:

• for inequality

• for public vs private education

• for population races

• for pro-natalist or anti-natalist policy

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Inequality

Inequality is usually found bad for growth

Many channels are invoked: political economy, sociopoliticalunrest, borrowing constraints...

One neglected channel: differential fertility

We show it is an important one

If inequality increases, rich are richer, have fewer highly educatedchildrenpoor are poorer, still have many uneducated childrenaverage human capital decreases in the future

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Initial effect of inequality

Endogenous Fertility Exogenous Fertilityσ2 g0 N0 I0 D0 g0 N0 I0 D0

0.10 2.00% 0.00% 0.056 0.09 2.00% 0% 0.056 00.75 1.26% 0.66% 0.404 1.95 1.87% 0% 0.400 01.00 0.80% 1.08% 0.520 2.76 1.78% 0% 0.513 01.50 0.01% 1.71% 0.707 2.77 1.53% 0% 0.700 0

I0: initial Gini on earnings. D0: initial fertility differential

from De la Croix and Doepke, AER 2003

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Inequality and Growth

0.2 0.4 0.6 0.8Gini

-0.005

Growth

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Education policy

Literature with exo fertility says public schooling is bad for growth

With endo fertility:

Fertility differentials between rich and poor are bad for growth

They are related to private investment in quality

It may disappear with (free) public schooling

That can be good for growth.

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PISA for Brazil and S. Korea

Country social % in priv. fertilitystatus schools

Brazil 16-35 2.35% 3.6736-53 10.59% 3.3654-70 23.00% 3.0771-90 49.60% 2.86

S. Korea 16-35 47.23% 2.4636-53 50.00% 2.2554-70 49.69% 2.1871-90 45.83% 2.20

A more egalitarian education system (or society) lowers fertilitydifferentials between rich and poor

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Additional effect of public education

Differential fertility → centrifugal force: higher reproduction bylow-skilled people increase the relative number of the poor. Publiceducation offsets this centrifugal force.

Same argument could be applied in deeply divided countries(because of different ethnic groups, religions,...)

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Conclusion about Public Education

1. Public schooling distorts the fertility and education choice ofparents: parents increase fertility once education is provided forfree.

This leads to lower growth in the long-run.

2. When there is inequality, the comparison of growth rates canswitch in favor of public education, because of differential fertility.

3. With private education, differential-fertility can result in adiverging income distribution. This divergence can be prevented bya public education.

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Fertility as a strategic variable

Suppose a deeply divided society, e.g. by ethnic groups.

Political power is often strongly increasing in the size of the group.

This provides incentives to have a high fertility norm, for the nextgeneration to regain power.

Example of Easter Island - population race between clans -environmental collapse.

Current examples: Palestinians - Orthodox Jewish.Extensions: Education race - Cast system in India.

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Population policy: pro- vs anti-natalism

[Sweet Achievement]

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Glory to the Mother Hero-ine!

Your country needs your heroicachievements

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Pro-natalist policy often combines incentives with norms

Putin’s policy:

Incentives: Child benefits, longer maternity leaves, etc...

Norms: Dubbing mothers with large families “Hero Mothers” (+medals)

Unclassifiable: Day of conception on Sept 12, with work stoppingat noon to encourage people to copulate

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Conclusion

Population policy can be effective, like the Chinese one child policybut accompanied / accelerated an inevitable transition

Can it be strong enough to reverse cultural or economic trends ?e.g. if men still do no participate in child rearing (Russia?)

Lesson from today:Pro-natalist policy may backfire on quality of childrenMay be ineffective in the face of gender imbalance within couples

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Does Fertility Respond to Economic Incentives? and does it ... · Introduction The decline in...

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