June 05, 2006
Grappling with Russia’s Demographic Time Bomb-BECKER
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’s 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.
Posted by Gary Becker at 12:55 AM | Comments (24) | TrackBack (0)
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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.
And here is the problem.
This program will have greater influence among the poor. Russian millionaires are unlikely to be swayed, but the Russian poor are likely to be convinced to have another child.
There is a very strong correlation between poverty and financial illiteracy. There is a very strong correlation between your parent's financial literacy and your financial literacy.
This program will increase the population - but it will increase the population of the financially illiterate (at best) or those dependent on the government (at worst).
Doesn't sound like it'll be good for the economy.
Posted by secret asian man at June 5, 2006 12:09 PM | direct link
Russia�s demographic decline like its democratic decline is hard to reverse. President Putin should encourage immigration of Russian Slavic population from what Russians term the near abroad.
Posted by Arun Khanna at June 5, 2006 12:17 PM | direct link
1) the worst demographic consequences must surely be averted if life expectancy is so low as to kill off the majority of people before they reach pensionable age.
2) productivity must surely be rising if more people are pursuing degrees in accountancy instead of Bulgarian literature
Posted by fiona at June 5, 2006 03:43 PM | direct link
I find it most remarkable that Russia is taking-- relatively speaking-- a 'small government' approach to this problem. Yes, there are some additional regulations on companies, but it basically comes down to the cash payout. If this succeeds, it will be extremely interesting to see how the rest of Europe reacts.
Posted by Andrew Berman at June 5, 2006 05:18 PM | direct link
I think it's a good idea to stimulate fertility, but I would redistribute a large part of the money on immigration programs and programs valued by middle class.
This is a good point about inducing the poor to have children. To get high-quality kids it would be better to induce the middle class to do so, not the poor. The benefits are so generous that they will induce all classes to have children (with $9000 one can buy country house (dacha) near St. Petersburg in a reasonably good place, you can imagine what you buy in a place far from capital cities). I would rather start programs that should induce middle class to have children: reform educational and health systems, start a real transition to voluntary army (obligatory Russian army service for boys is a great horror for potential mothers), make it easy to open a business (one window system instead of 1001 officials waiting for bribes) etc.
Also it's a good point about immigration: a great number of qualified and hard working Russians from former Soviet republics would like to come to Russia that suffers from shortage of labor but Russia acts as it doesn't have any problem with population decline. Attitude of the State towards people was always horrible in Russia and immigrants suffer a lot. Incoming immigrants are people who definitely need a large sum of money when they come: they have nothing to start with.
Posted by chicago boy at June 5, 2006 06:09 PM | direct link
As a Russian history PhD student, and as someone who's spent a lot of time in Russia, I'd just like to point out a small factual error in Professor Becker's comments. In fact it was Stalin who initiated cash benefits to mothers to encourage population growth. The 1936 family law included a clause to grant 2,000 rubles per year for five years to women with seven children (according to Sheila Fitzpatrick in Everyday Stalinism this was "a really substantial amount"). In 1944, when the population situation in the Soviet Union was even more desperate due to the gigantic losses during the war, Stalin announced cash awards for mothers with three or more children.
Personally I am skeptical of whether Putin's plan will have much effect. For one thing I have a feeling that in Russia, unlike in coluntries like Japan, the problem is not so much that women aren't having children at all but that they tend to only have one child. And that is probably related to the fact that Russian women tend to marry early and often get divorced after a few years. I'm not too sure how many of these divorced women remarry (it seems much more common for men). Because women have children so young, often while they're in university, they rely a lot on their own mothers to take care of their children. And with declining life expectancy plus poor pensions which make it harder for people to retire, I'm not sure how much longer that will be a viable option. Finally I've heard there are strict maternity leave laws in Russia which mandate that a woman be given three years (unpaid) leave, after which she must be allowed to resume her job. Naturally this makes many businesses reluctant to hire would be mothers, and probably does not make child-bearing so attractive to women.
Posted by Rachel at June 5, 2006 07:24 PM | direct link
The benefit is huge. People are not going to believe that such a program can last long.
This is likely to cause an explosion of births in all classes of population during some short period of several years (many people will have children earlier than they planned (students), many people will have children although they are already close to be grandparents. This short baby-boom is likely to create problems with providing medical help for future mothers, providing childcare and school education for the kids. I guess many people are currently waiting (although they are ready to have children right now) until the reform starts. After the reform ends or changes rules there would be a sharp decline. Good that middle class will also be induced (not only the poor), but a good cost-benefit analysis is needed for such a program. Yes, small government approach is a good sign. It?s hard for me to believe that such a program is possible in Russia. Probably some free-market-oriented economists persuaded Putin that this is the best approach. In such country as Russia this is enough to start the reform.
Posted by chicago boy at June 5, 2006 08:58 PM | direct link
The Russian authorities are right about one thing: If the birth rates are low in Russia, then it suggests that children are very expensive. The explanation is simple: the Russian population is currently larger than the market will bear. Incenting an increase in population is hardly the solution to this problem.
Posted by Thomas Brownback at June 5, 2006 10:04 PM | direct link
If Russia totally opened up its economy and allowed essentially free migration in, then that would get rid of the population bust without needing any subsidy. I guess Russia might need to work on assimilating the new minorities, but they have a history of doing that (albeit quite forcibly)
Posted by Larry Horse at June 6, 2006 12:23 AM | direct link
1. The first issue is do we need government intervention into the intimate life of families, and even more - do we need Putin to decide insted of the people themselves? I doubt there is some market failure argument that can be a justification for government intervention. I doubt that Putin or whoever bureaucrat knows better what is the "optimal" size of population. The parents are most suited to decide on that question - they have the best possible information - about financial situation, education possibilities etc.
2. When you give large cash bonuses that is a burden to the taxpayers - it's not a windfall. Spending more taxpayers' money has direct negative consequences on the development of the economy.
3. Giving money for having children will discourage participation of women in the labour force. That is not a good development.
4. Cash bonuses will increase birth rate for poor people - some of them will start living only on the "income" they take for having children and will certainly avoid working. Then you will have poor families with 10 children or more. Then you'll need to create a welfare program for these families - and you create a welfare dependency trap. That what's happening with the gipsy population in Eastern Europe and that is becoming a huge problem in these societies.
5. At some point you will end up with several huge problems - the welfare expenditures will rise as well as the poverty. The literacy rates will fall. The unemployment will rise.
6. As long as the Russian economy is not creating prosperity, people will continue to emigrate and the population will continue its decline.
7. Instead of reforming the economy Putin is starting a Latin American populist style of governing by offering cash to whoever wants (the same like Chavez in Venezuela). This will not increase the productivity in Russia at all.
Posted by Georgi Angelov at June 6, 2006 05:39 AM | direct link
Commenting on Georgi Angelov's comment.
It's not that Putin decides how many children to have. People still decide themselves, but they have more incentive to have two children. So this is not interference, this is an option to get a subsidy. So, people have better options now, not worse. This subsidy does create distortions, however, through changing fertility and creating deadweight loss by taxing.
It is not obvious that it is bad that some women switch for a while to home production. Many of them will be able to produce kids with high non-cognitive skills and also do home production which is very important although not registered in national accounting.
No, Russia is not going to get poor families with 10 kids. As I understand, they pay this huge amount only for the second kid. So, for sure a lot of poor families with 2 kids and $9000 in the bank (which will make them not so poor?)
Agree, looks like somewhat populist idea. This child program may help Putin's successor (who will for sure strongly support the continuation of this program) to win the elections. Inviting immigrants, by the way, is extremely cheap, efficient, but unpopular: people are afraid of competition; they have the wrong idea that immigrants will steal their jobs.
Posted by chicago boy at June 6, 2006 06:28 PM | direct link
Dr. Becker and other people leaving comments - what about making abortion illegal in Russia? Not for any of the usual moral reasons, but to increase population. It might sound drastic, but terminated pregnancies outnumber live births there, I've read. Stop even some of those abortions, and you have a big increase in fertility.
Surely, some women will go and get "back alley" abortions, but making them illegal would probably reduce them at least somewhat.
Is this a viable choice?
Posted by dba at June 7, 2006 01:18 AM | direct link
I don't think it's a good measure. Abortion is still a very important way to regulate fertility in Russia: many people are still very ignorant about contraception. A prohibition will cause tragedies of many women and children. A lot of single mothers would appear, a lot of orphans. Also, a lot of black market for abortion will appear leading to poor quality of this operation and high corruption. I hope Russia would never turn to such kind of prohibition policies.
Posted by chicago boy at June 7, 2006 09:10 AM | direct link
This is an interesting discussion about Russia, but what about the United States? Do we have an underpopulation problem? Is that why we spend so much money on education and tax breaks for people raising children?
It seems to me that if government were limited, Americans would have smaller families. We would not deplete the country of people because immigrants would continue to increase the population. Some argue that natives are necessary to retain the culture, but we seem to have assimilated outsiders well. And, letting others carry the expense of educating a portion of our population would reduce the strain on government.
Posted by James Publius at June 7, 2006 11:56 AM | direct link
As an American living in Saint Petersburg, I feel obliged to share:
I recently congratulated a Russian co-worker on the birth of his fourth child. The first of four was born in a normal Russian hospital, an experience which he told me he would never want his family to go through again. Children two and three were born in city private hospitals, which provide a level of healthcare on par with an average American clinic (and which is probably inaccessible to 99.5% of the local population). Their fourth child was born in Finland, a decision that I can only assume was motivated by the poor quality of Saint Petersburg’s health care.
In Saint Petersburg, ambulances will sometimes pick the injured and sick up off the street and then dump them off in a back alley somewhere else. Doctors’ wages are abysmal. Corruption is a feature, not just of the educational, political, and business climates, but of the medical profession; it is common for doctors to receive a commission from their local pharmacy for prescribing drugs. A Swedish friend who is finishing up her medical degree here has never entertained the thought of practicing in Russia.
Posted by ALMer at June 7, 2006 12:31 PM | direct link
The benefit will be at high cost for mothers. Russian authorities are not accustomed to think ahead even if something 99% predictable. For instance, they are always very surprised be high snow and low temperatures although this is almost an every year event. Now, a lot of birth hospitals were closed during low-fertility period. For sure, during the baby boom it will be hard for women to get good medical service. Later the children will have higher competition to enter the university and higher probability to be drafted.
Posted by chicago boy at June 7, 2006 02:16 PM | direct link
"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"
A comment from a European prespective: Contrary to what happens in Russia, the problem of low birth rates in Europe is mainly critical due to its combination with increased life expectancy. In your article you describe a situation where low birth rates come along with low life expectance rates. This is quite a strange situation. How is this affecting your economic analysis of President Putin's initiative? I am quite afraid that I tend to agree with Georgi Angelov above that his incentives are quite different and only explained within strict political terms.
Posted by Antonis Roussos at June 8, 2006 03:18 AM | direct link
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Posted by bawie at June 8, 2006 05:40 AM | direct link
Despite all criticism I posted above I understand Prof. Becker's optimism about the program. If optimal number of children (from parent's point of view) becomes one in developed countries governments (for whom optimal might be two or more, as they may have strategic goals that parents never take into account) have nothing to do but subsidize children. Giving parents cash is probably the least distortive way to do it. So, Putin's experiment (if successful) can become a pattern for developed countries.
Posted by chicago boy at June 8, 2006 10:18 AM | direct link
The main problem is that bringing up children is becoming a more and more expensive affair every where- not just in Russia. All the South Asian countries are burended with huge population but even here; in the large cities educated people are taking much fewer children than a generation ago.
Posted by Razib Ahmed at June 10, 2006 05:49 AM | direct link
I think they still have easily available abortion in Russia, a hangover from communism, which was highly ambivalent about the family and sexual "freedom."
Make abortion more difficult and the population will not fall as precipitately. The Orthodox church is surely anti-abortion.
Posted by Grumpy Old Man at June 11, 2006 07:35 PM | direct link
Ironically, using modern political lingo, both Hitler and Stalin may be attributed to the "PRO-LIFE" category. Both these "butchers" outlawed abortions. After the war Russia experienced "baby-boom" period (like in the US) but I suspect that part of it was due to "pro-life" policies of Stalin. He also put very long waiting periods on divorces and made it a very complicated procedure. In this respect Stalin may be on the same page with the Pope.
But, low and behold, I was born because of it!
When I was born my parents were in a very desperate situation: they did not have a place to live, my mother was not divorced yet from her first husband, they did not have any money and, on top of that, my father expected arrest by KGB every minute.
He even had a small suitcase ready for arrest,
sitting at the corner of the room. In every other country family would not even dream to bore a child!
But against all odds I was born, my father survived all purges, my mother become a manager and my father a professor!
Posted by kizhe at June 12, 2006 01:53 PM | direct link
Given how important fertility decisions are I would guess that the demand for abortion is pretty inelastic. "Making abortion more difficult" is likely to decrease actual number of abortions only slightly. For sure this would increase the cost of abortion and the number of black market abortions. Some increase in fertility is likely to happen, but mostly among the most disadvantaged mothers who would produce disadvantaged kids. Both abortion prohibition and abortion limitation are not kinds of policy that should be implemented.
Posted by chicago boy at June 12, 2006 05:15 PM | direct link
