A new era in the economics of fertility | VOX, CEPR Policy Portal – voxeu.org

Governments in many high-income countries are grappling with rapid population ageing driven by ultra-low fertility rates. In Germany, Italy, Spain, and Japan, fertility rates have been below 1.5 children per woman for more than two decades, implying that each new generation is less than three-quarters the size of the preceding generation. In East Asian countries such as South Korea, fertility rates are below one child per woman. Even in the US, which maintained fertility rates above the high-income country average for some time, fertility rates have recently dropped to about 1.6.

How can we make sense of why fertility rates have dropped, and how can we assess which measures, if any, might contribute to higher fertility rates in the future?

Starting with Becker (1960), economic models of fertility behaviour relied on two main ideas to account for empirical regularities of fertility choice. The first of these is the quantity-quality trade-off: the notion that as people get richer, they invest more in their childrens quality, in particular by providing them with more education. Given that education is costly, parents choose to have fewer children as incomes rise. The second main idea centred on womens opportunity cost of time. According to this mechanism, children are more expensive when womens wages are high and many women work, because raising children and working are competing uses of womens time. Relying on these mechanisms, first-generation models of fertility behaviour were able to account for the empirical regularities that held across a wide set of countries until a few decades ago, particularly the observation that fertility rates were lower in countries that are richer and where many women work.

The forces emphasised by first-generation models remain relevant in many places, particularly in countries that are still in the midst of their demographic transition. However, as we argue in a survey of the recent literature on the economics of fertility (Doepke et al. 2022), the classic ideas of the first-generation models of fertility are of little help in understanding ultra-low fertility rates in high income countries today because the basic observations that motivated first-generation models no longer hold in recent data. As a result, the economics of fertility has entered a new era, in which a new set of forces drive much of the observed variation in fertility.

Figure 1 Total fertility rate and GDP per capita across OECD countries

Figures 1 and 2 show how fertility in high-income countries has changed. In 1980, fertility was still declining in GDP per capita across OECD economies; by 2000, it was the richer countries that had more children. Similarly, Figure 2 shows that in 1980 in the OECD, the countries with the highest female labour-force participation had the lowest fertility rates. By the year 2000, this relationship had reversed fertility is now highest in countries where many women work.

Figure 2 Total fertility rates and womens labour-force participation across OECD countries

The changing empirical regularities of fertility were first noted in the sociology literature (e.g. Rindfuss and Brewster 1996) and discussed in economics starting with the contributions of Ahn and Mira (2002), Del Boca (2002), Apps and Rees (2004), and Feyrer et al. (2008). To account for the new facts of fertility choice in todays high-income countries, researchers had to consider new mechanisms that go beyond the forces emphasised by first-generation studies. Recent research in economics, demography, and sociology that rises to this challenge has a common theme: the compatibility of womens career and family plans emerges as a key determinant of fertility behaviour.

The underlying change that links career-family compatibility and fertility decisions is a shift in womens overall aspirations and life plans. As emphasised in recent work by Claudia Goldin (2020, 2021), in the past most women viewed having a career and having a family as mutually exclusive choices achieving one of these aims implied making a sacrifice in the other. Today, most women in high-income countries aspire to have both a family and a fulfilling career that spans most of their adult life. This aspiration reflects what has been the reality for most men in high-income countries for a long time; hence the shift in womens aspirations reflects a convergence in womens and mens overall life plans.

According to the new fertility literature, the desire to have both a career and a family matters for fertility outcomes because there is significant variation across countries in how compatible these two aims actually are. In countries where it is easy to combine career and family, women have both; in countries where the two are in conflict, women are forced to make compromises, leading to both fewer children being born and fewer women working.

In our survey, we highlight four factors that facilitate combining a career with a family: family policy, cooperative fathers, favourable social norms, and flexible labour markets.

The biggest challenge in combining a career and family is dealing with childcare needs. If women end up having to provide most of the childcare on their own, continuing in a demanding career while having young children will be difficult or impossible. A common alternative mode of childcare is provided by day-care centres and preschools, which can be public or private. If such childcare is widely available, covers all of the working day, and is affordable, women with young children have an easier time continuing to work and might be more likely to have larger families as a result (Del Boca 2002, Apps and Rees 2004).

Figure 3 Fertility and the female employment-to-population ratio by public early childhood education spending

In line with this intuition, Figure 3 (which is based on Olivetti and Petrongolo 2017) shows that public spending on early childhood education is closely related to both fertility rates and womens employment across countries. The countries with the lowest total fertility rates (below 1.5) are all in the bottom half of early childhood education spending. Other policies that help determine career-family compatibility include parental leave policies, tax policies, and the length of the school day.

Childcare can also be provided by fathers. Time use data show that until a few decades ago, mothers spent vastly more time on childcare than fathers did, but in many countries, fathers contributions have since risen. The division of childcare between parents has a direct impact on fertility decisions if parents bargain on whether to have additional children. Doepke and Kindermann (2019) show that in recent data, couples are likely to have another child only if both partners share the desire to have one. If men contribute little to raising children, women will be less likely to agree to another child, and fertility will be low.

Figure 4 Mens share of house work and fertility across countries

Consistent with this view, Figure 4 displays a strong cross-country correlation between mens contributions to childcare and housework and the total fertility rate. In all countries with a fertility rate below 1.5 (blue dots), men do less than a third of the work in the home.

The role of intra-household bargaining for fertility implies that deeper determinants of the division of labour in the household matter for fertility rates. These factors include family policy such as paternity leave (Farr and Gonzalez 2019), social norms regarding mothers role in the home and the workplace (Myong et al. 2020), and workplace practices such as an expectation of long hours in career positions and the presence (or absence) of flexibility to deal with sudden childcare needs, for example when a child falls ill.

Lastly, the compatibility of career and family also depends on labour market conditions (Del Boca 2002, Adser 2004, Da Rocha and Fuster 2006). If stable, well-paid jobs are hard to find and unemployment rates are high, parents may be worried that a temporary career interruption following the birth of a child may turn into a permanent one. Having another child is less of a concern when desirable and flexible jobs are easy to find.

For policymakers concerned about ultra-low fertility, the new economics of fertility does not offer easy, immediate solutions. Factors such as social norms and overall labour market conditions change only slowly over time, and even potentially productive policy interventions are likely to have effects that only build gradually over time. Yet, the clear cross-country association of fertility rates with measures of family-career compatibility shows that ultra-low fertility is not an inescapable fate, but a reflection of the policies, institutions, and norms prevalent in a society. New-generation research on how these features determine fertility rates can help point the way to a future that avoids the current trajectory of ever-smaller families and gradually diminishing populations.

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