Russia has the highest death rates among all countries with at least moderate levels of economic development. The present life expectancy for a typical male is about 58 years, below what it was 20 years ago in Russia. For comparison, life expectancy for males is about 75 years in the United States, which itself is below that of Japan and a number of Western European nations.
Even more worrisome to many Russians are the very low birth rates during the past couple of decades. The total fertility rate- the number of children born to the average woman over her lifetime- is expected to be just 1.28 in 2006, or just a little more than one per couple. Russian fertility is among the lowest in the world. Russia's low birth rates and high death rates make it one of the only half dozen countries (mainly in the former Soviet bloc) with declining populations. The Russian decline is currently about 700,000 persons per year, but the rate of decline will accelerate as the number of women in childbearing ages continues to fall. A World Bank report projects that with unchanged birth and death rates, Russia's population would fall from its present level of about 140 million persons to under 100 million by the year 2050. If this happens, such a huge nation would then be largely empty of people.
Neo-Malthusians and others may believe that a lower population is a blessing because it reduces pollution, and raises labor productivity by lowering the number of workers per acre of land and per unit of capital equipment. However, low birth rates reduce the number of persons of working ages relative to retired persons, and thereby makes it more difficult to raise enough revenue from taxes on workers to pay for the retirement benefits and medical care of the aged.
Whatever may have been true when countries mainly depended on traditional agriculture, in the modern world a smaller population in a country like Russia that already has relatively few people per square mile also tends to lower productivity. Although international trade provides an outlet for specialized workers, a lower domestic population still discourages specialization and the division of labor because it reduces the extent of the domestic market. Lower population may also discourage investments in developing new products that get higher returns when there are more people to buy them.
So in my judgment President Putin is correct in his recent expression of concern not only about Russia's high death rate, but also especially about its low birth rate. He wants to encourage women to have more children, but he is deviating sharply from past leaders like Stalin who offered Medals of Glory to mothers who had many children. Putin has become sufficiently market oriented to encourage larger families by appealing to Russian pocket books. The high world price of oil and natural gas has provided Putin with abundant resources to play with, and he wants to use this energy bonanza to slow, and if possible reverse, the demographic decline of Russia.
Putin has proposed a ten-year program with very generous benefits for Russian women who have a second child- about 70 per cent of Russian women of child-bearing ages presently either have no children or only one child. Under his plan, women who do have a second child will get up to $110 more per month in child allowances, they would be able to take leave from work for up to eighteen months while receiving 40 per cent of their salaries, and they would get larger subsidies for child care. But the most novel aspect of Putin's proposal is to give a cash bonus of over $9000 to women who have a second child. This bonus is considerably larger than the annual earnings of a typical Russian worker, men or women, and it could be used for mortgage payments and for many other large outlays. Putin acknowledges that this program would require lots of money (perhaps 1 per cent of Russian GDP), but he claims that it is necessary in order to "change the attitude of the whole society to the family and its values". Of course, Russia will not have the resources to implement the program if oil and gas prices fall sharply during the next few years, which is a real possibility.
Will Putin's financial approach work? I believe it will in the sense that the program is likely to induce many more Russian women to have a second child. To be sure, other countries have tried to increase birth rates through financial incentives, and these programs have had only mixed success. Guy Larouque and Bernard Salanie have a very careful evaluation of the generous but extremely complex system of monthly child credits in France. Their estimates indicate that child subsidies to French women have raised France's total fertility rate by some 5 per cent, or by about +0.1. Although France now has one of the highest fertility rates in Western Europe, their study suggests that this is only partly due to the elaborate French child subsidy system.
Putin's proposal is much more generous than the French program, although the Russian subsidies would only apply to women who have a second child. I believe that his plan would be quite effective, not only because it is generous, but also because the centerpiece is a cash bonus rather than a stream of monthly payments. The U.S. military has discovered that reenlistment rates are more affected by sizeable bonuses than by what would seem to be an equivalent series of payment in the form of higher annual compensation during the reenlistment period. Bonuses are more effective probably because younger people are usually short of ready cash for big purchases, such as apartments and homes, cars, and other consumer durables.
Such liquidity constraints are far more important in Russia than in the United States since the Russian financial sector is extremely primitive and undeveloped. The typical Russian family does not have credit cards, or access to commercial loans on homes or car purchases. So the value of a large cash payment for having a second child is likely to be very appealing, especially to less educated women and other lower income families.
For this reason, I expect the Russian approach to child subsides to be more effective at raising birth rates than child subsidies have been elsewhere. Extrapolating the French results would give a very large effect of the proposed Russian system of subsidies and bonuses on Russian fertility (based on an email from Bernard Salanie)). Partly for reasons mentioned by Posner, the actual results are likely to be smaller, so I would guess that Russian fertility would increase by about 10-20 per cent from current levels, or from the present total fertility rate of 1.28 to perhaps as high as 1.55. Since even this upper limit leaves Russian fertility far below the level (2.1) that would be sufficient to maintain its present population level, such a generous subsidy system is unlikely to revolutionize the way Russians view large families. Many of the factors that have led to small families, such as the high level of women‚Äôs education, expensive housing, and high divorce rates, would not be greatly affected by these baby subsidies. Still, an increase of the fertility rate to 1.55 would greatly slow the rate of decline in the Russian population.
The Russian experiment will be carefully watched by many of the almost 100 countries with total fertility rates that are below, many of them far below, replacement levels. If Russia succeeds in significantly raising its number of births, other countries that fear a long run sharp decline of their population are likely to follow with their own programs to encourage women to have more babies.
I am going to go out on a very long limb and predict, contrary to Becker, that Putin's plan will fail. The major reason is that it lacks credibility. Having a child is a long-run investment, and Russians cannot be confident that the long-run features of the plan--the increased housing allowances and child-care subsidies--will be implemented throughout the childhood of the second children. Even the short-run features are uncertain. The generous upfront cash grant cannot be withdrawn from the bank until the child is three years old, which means three and three-quarter years after conception. And the paid-work-leave provision is supposed to last 27 (18 + 9) months after conception. I assume, without knowing, that the work-leave provision is to be funded by employers--and will there be any actual enforcement? If I were a Russian, I would be extremely skeptical that the plan will be fully funded and implemented, and this would make me reluctant to invest in a second child.
Moreover, a plan that costs 1 percent of GDP (that would be more than $100 billion in the United States, though it is only about $15 billion in Russia) must be financed, and depending on how it is financed, it may reduce the after-tax incomes of couples, thus offsetting, perhaps to a considerable degree, the benefits conferred by the plan. (Of course if the plan is a failure, it will not cost 1 percent of GDP, but that would just make it a cheap failure.)
Even if Becker's estimate of the effect of the Putin plan is correct--that it would raise the birthrate by 15 to 20 percent--that would still leave the birthrate far below the replacement level. So this expensive plan, even if successful (which is what would make it expensive), would merely reduce the rate of population decline. That rate is a function not only of the birthrate but also, as Becker points out, of the very poor health of the average Russian man. So if the main goal is to retard population decline, Russia might in lieu of the Putin plan allocate an additional 1 percent of its GDP to health care. Current health expenditures in Russia are only about 6 percent of GDP; a 17 percent increase (1/6) in health expenditures might have a dramatic effect on longevity. The broader point is that before Russia throws a huge amount of money (by Russian standards) at a problem, it should be careful to make sure that there are no better uses for the money.
Should Russia worry about population decline? Curiously, when population decline is heavily influenced by excess adult mortality, the decline has less effect on the dependency ratio (the ratio of nonworkers to workers) than when it results solely from a low birthrate. Japan has a very high dependency ratio because of that nation's combination of high longevity with a very low birthrate. Russia has low longevity and thus relatively few (male) retirees.
Apart from the effect on the dependency ratio, I don't think a country should worry much or maybe at all about a declining population. A declining population means less pollution and congestion and, as Becker also notes, a higher ratio of land to population--the Black Death in Europe in the Middle Ages contributed to a substantial increase in average wages as a result of the reduction in the population (by about a third--which is almost the reduction predicted for Russia by mid-century); and that wage increase, some economic historians believe, set the stage for Europe's subsequent economic takeoff. The effect in Russia would not be nearly so dramatic, however, because Russian population density is already low, although this is a little misleading because large parts of Russia are virtually uninhabitable.
Judging from the economic success of countries with very small populations, such as Switzerland, Singapore, and Denmark, the fact that a greater population increases the opportunities for specialization is not importan to a nation's prosperityt. The reason is free trade. A small country specializes in a few products and trades them for products in which other countries specialize. Put differently, given free trade, the relevant market is the whole world, and the size of the global market is not significantly affected by Russian demographic trends.