A new perspective on fertility and income levels

Researchers say the empirical observations that have guided economists so far no longer hold true, saying the inverse relationship between income levels and fertility has flattened or reversed in many high-income countries.

Researchers say the empirical observations that have guided economists so far no longer hold true, saying the inverse relationship between income levels and fertility has flattened or reversed in many high-income countries.

“The Economics of Fertility: A New Era”, Matthias Doepke, Anne Hannusch, Fabian Kindermann and Michèle Tertilt, April 2022, NBER working paper no. 29948, JEL no. D13,J13,J16

Economists studying the subject of human fertility have traditionally tried to explain two empirical observations in the real world. One such empirical observation is the fact that in many countries there is an inverse relationship between fertility and income levels. In other words, as income levels have risen around the world, fertility levels have fallen significantly. In fact, in many countries in the Western world, fertility is currently below replacement levels and governments are trying to get people to have more children. The second important empirical observation was the inverse relationship between women’s participation in the labor force and their level of fertility. In other words, as women’s participation in the labor force has increased over the years, there has been a decline in fertility levels.

Economists have generally explained the inverse relationship between income and fertility as being due to the decision of modern households to invest in the quality of the children they raise rather than in the quantity of children they have. In fact, some economists have argued that the decision of households to invest in the quality of children rather than the quantity of children is what has helped many countries build modern economies characterized by high productivity. So, according to this view, when many households decided to have fewer children and also sent those children to school to learn various skills over several years, for example, it helped to boost the productivity of the economy.

On the other hand, the inverse relationship between female labor force participation and fertility has been explained in terms of the costs for women who are employed when it comes to having and raising children. As more and more women have entered the workforce over the decades, the opportunity cost of bearing and raising children has increased and led many of them to have fewer of children. For example, a working woman must give up income for a considerable period of time when she spends time out of the labor market to have and raise children.

Women’s work and fertility rate

In “The Economics of Fertility: A New Era”, scholars Matthias Doepke, Anne Hannusch, Fabian Kindermann and Michele Tertilt argue that the two empirical observations discussed above that have guided economists to date no longer hold true in large parts of the world today. They argue that the inverse relationship between income levels and fertility has either stabilized or reversed in many high-income countries. Even more surprisingly, there is now a positive rather than a negative or inverse relationship between female labor force participation and fertility levels in many countries. In other words, even though women’s participation in the labor force has increased, there has also been an increase in fertility levels. The researchers argue that there may be a variety of reasons for the dramatic shift in those empirical observations that have guided mainstream economists for many decades now.

Women today, for example, receive more support from their families, the state and others when it comes to raising their children. Employment conditions can also be better adapted to the needs of working mothers, thereby encouraging more working women to have more children. Changes in social norms and support for working mothers may also have contributed to rising fertility levels at a time when women’s labor force participation increased, the researchers say. All of these factors together may have helped to reduce the so-called “motherhood penalty” that women incur when choosing to work.

What does this mean for old theories?

What does all this mean for the old theories that economists used to explain empirical regularities observed in the past? It would be difficult to rule them out completely because the opportunity cost of having and raising children will always have an effect on decisions made by households. Whether in the 19th century or the 21st century, a woman thinking about having children will always consider the opportunity cost of having a child in terms of potential lost earnings. Similarly, household decisions to invest in the quality of the children they raise or rather to increase or decrease the number of children they have will also have an effect on fertility whatever the period in which we live. In other words, these are truths that are still true even though empirical observations may lead us to believe that they no longer matter. It may simply be that the effect of income levels and labor market participation is now blunted by other factors such as social norms, family and state support, etc. The decision to have children can be a topic of interest that deserves to be explored by social scientists. After all, it can have a significant effect on the cost that households are generally willing to bear to have and raise children.

THE ESSENTIAL

Economists have generally explained the inverse relationship between income and fertility as being due to the decision of modern households to invest in the quality of the children they raise rather than in the quantity of children they have.

In their article, the authors argue that there is now a positive rather than a negative or inverse relationship between female labor force participation and fertility levels in many countries.

Today, women receive more support from their families, the state and others when it comes to raising their children. Working conditions can also be better adapted to the needs of working mothers.

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