Baby Boom

How to bring back our birthrates

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Just a generation or two ago, we nervously wondered whether there would be enough food for future generations. Today, we ask ourselves, will there be future generations to feed? Instead of an uncontrolled population explosion, societies worldwide are now grappling with the prospect of population implosions. This is a problem because people form the nodes of a global social supercomputer; fewer humans probably means slower innovation, growth, and possible stagnation. Therefore, one by one, governments are establishing pro-natal policies to encourage larger families. Here, we examine how well these policies work. Spoiler alert: they don’t work very well at all.

Falling Fertility

Many experts do not look kindly on the prospect of a falling human population. We have previously discussed the rationale for these concerns here, so I will not rehash them. But before we continue, a gentle word of caution: measuring fertility is more challenging than most assume. The most widely utilized measure is the Total Fertility Rate, or TFR, the sum of fertility rates by age in a calendar year. TFR, however, is highly variable and often misinterpreted as a measure of final family size. TFR statistics can be skewed when families choose to have children later in life. Ultimately, to get a sense of the true “fertility rate,” we need to look beyond TFR to the total number of children born to women at the end of their reproductive cycles, or “complete cohort fertility.” Unlike TFR, this number is not influenced by delayed childbearing.

While completed cohort fertility is a more stable and reliable metric (countries can fluctuate between high and low TFRs while maintaining similar family sizes), it forces us to always look in the rearview mirror. Completed cohort measures require us to wait for a cohort of women to reach a certain age, which means we need to wait decades to observe trends. With this delayed data, it becomes impossible to assess the impact that government policy or social trends might have on fertility. For this reason, researchers have developed alternative indicators that combine the best elements of completed cohort and TFR data to observe fertility trends in “real-time.”

Measurement difficulties acknowledged, there is no doubt that fertility is declining globally. The cause, however, is somewhat of a mystery. In a 2008 study, Bruce Sacerdote and James Feyrer postulated that, to some degree, falling fertility correlates directly with the rising status and income of women in the modern world. When women have few opportunities in the workforce, they tend to have many children. As their status and labor participation rates climb, they tend to have fewer children. But an income/opportunity explanation alone does not explain global fertility trends. More broadly, the decision to have children is influenced by economic, social, and technological factors, which interact with one another. Historical examples illustrate how family size is influenced by issues of burden sharing, risk, and opportunity cost.

The Baby Boom

We tend to assume that low fertility rates are a modern phenomenon, but actually, we have been here before. Fertility rates in much of the Western world dropped steadily in the 19^th century, and by the 1920s, over half of Europeans lived in countries with a TFR below replacement level. In fact, even then, depopulation fears were so politically salient that governments began to panic. The British government, attempting to right the ship, established the National Birth Rate Commission, while in Italy, Mussolini campaigned on pledges to ‘Battle for Births.’ This fact is astonishing, for it parallels the modern fertility crisis exactly a century later.

Yet, at the very moment the demographers believed that all was lost, came the “Baby Boom.” The Baby Boom was a surge in births that suddenly, and inexplicably, broke the prevailing trend of the prior century. I say inexplicably because most erroneously assume that the Baby Boom was the product of soldiers returning from the horrors of the Second World War. You may be surprised to learn, however, that the Baby Boom began as early as 1935, before the war was even underway, in the middle of the Great Depression, no less. The surge in births also reached far-flung places like Australia and New Zealand.

So, what caused the Baby Boom and what lessons might this hold for us today? Works in Progress addressed this question, writing that one of the earliest theories, proposed by Richard Easterlin, the same economist from whom the Easterlin Paradox is named, was the relative income theory. Easterlin suggested that the parents of the Baby Boomers were so influenced by the Great Depression that, as the economic recovery was underway, their expected or relative income was much higher, which encouraged them to marry younger and have more children. Yet, decades and dozens of studies later, there remains no statistical evidence to confirm the theory.

Others have suggested that technological change is to blame, particularly the proliferation of time-saving electric appliances in the home, which made it easier to sustain a household. We discussed the transformative effect of these appliances earlier. Indeed, an economic model built by economists Ananth Seshadri, Jeremy Greenwood, and Guillaume Vandenbroucke, using only two variables (income and household appliance penetration), predicted the rise in fertility during the Baby Boom quite well. Still, this explanation is insufficient. A 2009 study, for example, examined the fertility rates of groups that shunned these technological advances, including the American Amish. Despite not adopting these appliances, the Amish were swept up in the same baby fever. Why?

While it might seem that we’re back to “square one,” the potential of a technological origin of the Baby Boom might not be totally off the mark. While the Amish did not adopt labor-saving appliances, they did openly embrace the medical innovations of that era. Indeed, advancements in medicine, including life-saving “wonder drugs” like antibiotics, are credited with greatly reduced maternal mortality, reducing the risk of childbirth. Between 1936 and 1956, for instance, the maternal death rate in America plunged 94 percent, a trend mirrored all across the Western world. There is evidence of causality, too. Maternal mortality had varied greatly between US states in the early 20th century, but due to medical advances, the disparity largely disappeared by the 1950s. The states that saw the greatest reduction in maternal mortality also saw the largest increase in fertility in that time period.

Even so, another factor seems to have been at play: a surge in housing availability. We discussed the impact of housing on fertility earlier, where housing availability, or more precisely, the lack thereof, determines the number of children born. In 1940, less than 30 percent of American men owned a home; by 1960, as the Baby Boom was underway, this had reached 52 percent. Studies examining building permits issued by local governments found a strong correlation between the number of building permits issued and marriage rates over the next three years. It is suggested that, between 1930 and 1950, an increase in housing construction accounded for perhaps 10 percent of the overall new births. This trend was mirrored in the UK, where construction rose, followed by marriages, then by more new births.

Another study by Victoria Angelova and Leonardo D’Amico also found a strong connection between fertility and the cost of housing. They examined changes in US mortgage financing between 1933 and 1940, which lowered the cost of obtaining a mortgage in many parts of the country. They found that jurisdictions where mortgage rates fell the most also saw the largest increases in birth rates. In sum, the Baby Boom was a multivariate phenomenon, with at least three mechanisms converging at just the moment when fertility was below replacement level, changing the very course of human future history.

Do Pro-Natal Policies Work

Now, let’s examine some pro-natalist policies employed worldwide and their efficacy. Pro-natalist policies attempt to rebalance the lost “opportunity cost” of having children by giving benefits to new parents. Bruce Sacerdote and James Feyrer’s research reveals that fertility increases when the burden, the cost of raising children in terms of time and money, is reduced. Indeed, the level of public spending on families, measured as a percent of GDP, correlates fairly well with fertility. For example, a significant rise in family spending in Sweden from the 1960s through the 1980s led to a rise in fertility relative to other Scandinavian countries. How these financial resources are allocated, however, matters a lot. Pro-natal responses to falling fertility fall into three broad camps: 1) parental leave schemes, 2) childcare assistance, and 3) direct financial assistance.

Parental leave schemes are often government-funded and aim to give new mothers (and sometimes new fathers) time off work to recover and care for a newborn child. Depending on the duration of that leave and the level of pay, such schemes, in theory, make it easier for a couple to care for a new child. Studies on parental leave, however, are mixed as to whether they truly boost “completed” fertility. Indeed, one study of 15 European nations found that expanded parental leave programs do not affect completed fertility at all, while others have estimated small reductions in childlessness.

Childcare assistance programs, on the other hand, have a more discernible impact. Policies like publicly provided daycare services are positively correlated with higher fertility. For instance, Luci-Greulich and Thévenon (2013) estimated that in OECD countries, a 10% increase in childcare enrolment would increase the tempo-adjusted TFR by 0.08. This is especially true when the childcare is high quality, aligns with parents’ working hours, and is long enough in duration to bridge the gap between parental leave and public schooling.

Financial Assistance also appears to be somewhat effective. Kevin Milligan evaluated the Allowance for Newborn Children (ANC), a program that ran in Quebec from 1988 to 1997. In this scheme, families received direct cash benefits for every child they had. The payment size was determined by the child’s birth rank, with payments made quarterly up to a total of $8000. The introduction of the ANC led to an increase in Quebec’s fertility rate relative to the rest of Canada, and he concluded that the fertility rate of eligible recipients increased by 12 percent on average. Similarly, another study by Azmat and González, estimated that an added tax credit for working mothers with children under the age of 3, alongside an increased tax deduction for families in Spain, led to a five percent increase in the probability of new births.

Designing A Family Package Policy

Notably, while they have some effect, none of these policies move the needle all that much, especially in isolation. Restoring birthrates will likely require an “all of the above” approach, alongside a look at the broader issues facing modern families. In my view, new mothers should be provided with six months of fully paid parental leave. This is more a matter of health than fertility: the World Health Organization recommends newborns breastfeed exclusively until they are six months old because drinking breastmilk is associated with long-term well-being, including a reduced risk of obesity, cancer, and asthma. The social and economic cost of providing six months of leave probably pales in comparison to the long-term public health benefits.

As for childcare, the aim should be to help families bridge the gap between parental leave and public schooling. Here, we may consider a voucher program in which all parents receive a voucher covering the cost of preschool or daycare. This system would function similarly to my proposed education voucher system for funding public schools. The merits, again, however, go beyond fertility. PISA (Programme of the International School Assessment) survey research, for example, suggests that quality early childcare programs are positively correlated with better school performance at age 15. Alternatively, we could fold the childcare scheme into a larger direct cash assistance program, by providing new parents with financial assistance covering the cost of childcare plus additional subsidies for raising the child. The advantage of direct cash assistance, as opposed to vouchers, would be lower administrative costs and greater freedom for parents, who could use the funds in any way they saw fit. They could decide to hire an au pair or a nanny, for example, or simply keep the money and stay home with their child.

Ideally, direct financial assistance would function like a child tax credit, but be fully refundable and paid in installments throughout the year. Here again, the benefits are broader than merely raising fertility. In a study by Irwin Garfinkel et. al., researchers performed a systematic review of cash and near-cash income transfer programs. The long-term effects of cash transfers are overwhelmingly positive. Their research found that children of parents who were provided cash assistance had better health, longer life expectancies, increased future earnings, and a reduced probability of incarceration. They estimated that a permanent $1000/year expansion of the child tax credit in the US, similar to the one passed in the American Rescue Plan, would cost $97 billion per year but yield $982 billion in annual net social benefits.

Together, the above measures would certainly (at a cost) raise overall fertility. We should guard against naïveté, however. Pro-natalist policies are no panacea and certainly will not promote a sustainable population in a vacuum. We should instead focus on designing policies that maximize economic growth, innovation, and social opportunities. If and when we do, we may find, yet again, that technology is our savior. The forms these technologies take could range from household robots to artificial wombs to affordable modular housing. But no matter how we slice it, averting a fertility crisis requires pro-growth and pro-progress policies that comprehensively and coherently promote maximum human potential.

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