Rich nations need to find a cure for baby bust

Should rich countries try to get their citizens to have more children? Social conservatives generally say yes.

Centrists often tentatively agree, worrying that the financial burden of paying for ageing populations will be intolerable for a shrinking base of young workers. Liberals often counter that more people in rich countries would just put pressure on the environment, and that population problems are better solved by higher immigration.

The truth is, the right answer to this question probably varies from country to country. In the United States, boosting fertility isn't a big priority. The US has a total fertility rate of 1.8 children per woman, which is reasonably close to the replacement rate of 2.1 - that is, the rate that leads to long-term population stability.

Also, the US tends to be welcoming to immigrants, and (at least, up until now) has been able to attract large numbers of the skilled immigrants who contribute most to fiscal and financial sustainability.

But for rich countries in Europe and East Asia, the picture isn't so rosy. These countries have historically defined their national identity less in terms of universal ideals and more in terms of shared ancestry and ethnicity - as much as liberals would like to change that fact, it means that countries such as Germany, Japan and South Korea probably can't import enough people to cancel out ageing without risking a xenophobic backlash.

Also, these countries are in a much worse situation in terms of fertility - Japan's rate is at 1.46, Germany's at 1.5 and South Korea's at a startlingly low 1.24. Without more babies, these countries' economies are in danger.

How can the government raise fertility? Social conservatives often claim that a more religious society is the answer, pointing to the high birth rates of groups like Mormons and Hasidic Jews. But while religion may be a personal motivator for having kids, there's little evidence that governments can do much to harness this effect on a broad scale.


There are two policies that show more promise as long-term birth-rate boosters, says the writer. These are childcare subsidies and paid parental leave. PHOTO: REUTERS

For example, Iran installed a theocratic government in 1979, and it aggressively enforces traditional values. But its fertility rate is now below replacement level. And Saudi Arabia, where traditional values are also strictly enforced, continues to see its own fertility rate fall precipitously. If even Iran and Saudi Arabia have seen birth rates fall this much, it seems like there's little hope for a government-driven religious baby boom in Europe or Asia.

So what government policies do raise fertility? Singapore's failure to raise birth rates by encouraging marriage and paying people to have more kids has been much publicised, leading some to believe that pro-natalist policy is useless. But Singapore might be a special case - it's a city-state, with extremely high population density. Countries with more room for lower-density suburbs may be a different story.

The most obvious solution - paying people to have children - sometimes causes a short-term spike in birth rates. But a lot of this is probably due to timing - parents who were planning to have kids at some point have them earlier in order to claim the benefit immediately.

Over the long run, some of these direct childbearing subsidies leave fertility unchanged. Some studies have found that childbearing subsidies raise fertility even after timing effects are netted out, but the effect is modest.

The reduction in opportunity cost from not losing your position on the career ladder when you have a kid, or from not having to give up your job to take care of a child, is probably a lot bigger in dollar terms than any government baby bonus could ever be. There is encouraging evidence that these policies boost fertility.

But there are two other policies that show more promise as long-term birth-rate boosters. These are childcare subsidies and paid parental leave. Both of these policies make it easier to bear the burden of child-rearing - in economic terms, they reduce the opportunity cost.

The reduction in opportunity cost from not losing your position on the career ladder when you have a kid, or from not having to give up your job to take care of a child, is probably a lot bigger in dollar terms than any government baby bonus could ever be.

There is encouraging evidence that these policies boost fertility. Demographers Olivier Thevenon and Anne Gauthier surveyed the evidence in rich countries, and found that "policies that facilitate the work-family balance seem to have a strong influence on the decision to have children or not". In other words, it's not just a timing effect - policies to make it easier for people to both have kids and hold down a job or career can change the whole decision of whether or not to have children. Other studies tend to corroborate this finding.

So countries like Japan, Germany and South Korea do have a way out of their low-fertility trap that doesn't require potentially destabilising levels of immigration. Paid parental leave and heavily subsidised daycare aren't cheap, but they work. And even countries like the US, where fertility isn't a pressing issue, should consider alleviating pressure on struggling young parents by adopting some of these pro-family policies.

BLOOMBERG VIEW

A version of this article appeared in the print edition of The Straits Times on November 10, 2017, with the headline 'Rich nations need to find a cure for baby bust'. Print Edition | Subscribe