Low Birth Rates: Causes, Consequences, and Remedies-Becker

Not long ago a vocal concern was about high fertility in the world and a rapidly growing population. Remember the currently quiet zero population growth (ZPG) movement? The tide has turned since the worry now is about too few births and a falling population.

The reason for this shift in attitude is that over 80 countries have fewer births than required to replace the number of individuals who die each year. They need a large flow of immigrants each year just to prevent their populations from peaking and then declining. These low birth countries contain over 40% of the world’s population, including every country in Western Europe, China, Japan, Russia, Poland, and Canada, to name just a few. Birth rates in many other countries, including the United States, Mexico, and Iran, are only a little above the level necessary to replace the number of deaths.

Scholars measure the level of fertility by the total fertility rate (TFR), which equals the average number of children born to women over their lifetimes. Countries with TFRs below the replacement level of about 2.1 fall into the low fertility camp. Essentially no countries were in this camp in 1970, but in each succeeding decade many additional countries fell below replacement levels. Moreover, and this is important, in not a single country has the TFR ever risen above replacement once it fell below.

As late as the beginning of this century, demographers and others were predicting a rapid growth in world population to over 11 billion by the year 2050. The rapid emergence of low fertility in so many countries has already made these forecasts obsolete. Populations forecasts now assume much lower future fertility levels, but even the present consensus that world population will be about 9 1/2 billion by mid-century may be too high as fertility continues to fall rapidly in poorer countries.

There is growing discussion in many low fertility countries about the negative consequences of having fewer young persons, and the prospects, already a reality in Germany, Japan, Russia, and a few other countries with low immigration levels, of declining populations. In richer countries, retirement incomes and medical care of the elderly are largely financed by taxes on the younger working population. Low birth rates eventually lead to fewer men and women of working ages, and hence a smaller tax base to finance social security payments, unless the fewer children born have sufficiently greater amounts invested in their education and other human capital.

Although potential difficulties in financing social security benefits are receiving the most attention, other negative effects of low birth rates may be of equal or greater importance. Low fertility reduces the rate of scientific and other innovations since innovations mainly come from younger individuals. Younger individuals are also generally more adaptable, which is why new industries, like high tech startups, generally attract younger workers who are not yet committed to older and declining industries.

The great majority of countries have had growing populations during the past 250 years as world population grew at unprecedented rates. Yet ever since Malthus wrote his great work on the harmful effects of population growth on incomes, group after group have opposed high fertility and growing populations as bad for the world’s food supply, standard of living, and environment, including local and global pollution.

However, these possible negative effects of larger populations have to be weighed against the sizable benefits from more people. These benefits include a larger number of young persons who, as mentioned earlier, are more likely to innovate, such as coming up with more efficient ways to grow food, and pay for the benefits to retired men and women. A bigger population also increases the demand for new drugs, software, social networking, and other innovations that have increasing returns to the scale of demand.

To be sure, if higher birth rates lead to lesser education and other human capital investments in each child, they may result in lower, not higher, per capita incomes. Malthus fear of lower per capita incomes explains his strong opposition to high birth rates. However, the rapid growth in world population during past 250 years has been accompanied by unprecedented high per capita incomes all over the world. Whatever the Malthusian negative effects of greater population, they have been dominated by factors that raised per capita incomes, including the benefits of increasing returns and other advantages from having a larger population.

China is seriously considering either greatly modifying or completely abandoning its “one child” policy because of its effects on the number of young persons, and population decline. France a while back instituted a generous and expensive system of financial support to families that have 2 or more births. Germany, Japan, South Korea, Russia, and other countries are discussing and sometimes implementing similar child support programs.

Whether a subsidy is justified depends on whether the benefits from more births and a larger population, including the benefits to the families having children, exceed the cost of encouraging births, such as the budgetary costs to governments of a child support program, potentially greater environmental damage, and the like. Even if, as I firmly believe, that on the whole greater population in the modern world has more benefits than costs, one has to recognize that programs to stimulate births are expensive, aside from simply ending birth suppression policies, as in China’s one child regulatory policy,

For example, to cut the gap in half between Germany’s actual TFR of about 1.4 and a replacement level of fertility of 2.1 requires a 25% increase in the number of births. Yet such a large increase in fertility has not been achieved by any past fertility subsidy programs, even expensive ones, presumably because children are so costly to raise in the money, time, and energy of parents. A more modest 10-15 percent growth in fertility might be achievable with generous and expensive programs, as in France. Perhaps a full benefit cost analysis would show that such a program is warranted, but the jury on this is still out.

Comments

[Jonathan J Ha]

While fertility is an important part of keeping a powerful, mobile and advancing workforce part of the economy, there simply may not be enough room for that model anymore.

Malthus wrote his classic in the 19th century; well before modern innovations dashed his predictions for a crushing carrying capacity on earth: we haven't begun making Soylent Green either. Although technological innovation may push the carrying capacity of earth some more, its clear that current rates of population growth may be unsustainable within two or three generations.

The idea espoused rings true to me; among the millions born every year, surely one Feynman, one Einstein, one George Bernard Shaw must be born among them. But the more frightening prospect isn't that great people will no longer be born, but that they are already born and are starving away. In finance jargon, instead of capital widening, perhaps we too should deepen our capital.

[Thomas Andres]

I can't believe there are those who still think this way and are blinded to the fact the world is already over populated and getting worse in spite of all the amazing new technology. Only an economist using past models can support this blog. Anyone who steps out in the real world can see what unsustainable destruction we are causing to the environment and massive extinctions, not to mention the spread of a lower standard of living among the vast majority of humans. More humans on the planet will only make matters worse. Why is that so difficult to see?

[Chris Bates]

I think Thomas Ardres, you are mistaking human "greed" and the belief we are free of the taint of corrupt politicians, criminal organizations, robber barons in one industry or another providing not only our conflict diamonds, but many minerals. Your cellphone needs Colan (80% from the Congo) which has not only caused decades of sustained warfare, but illegal mining is destroying the habitat of the Congo gorilla, primitive mining of gold requires the use of lead placing these illicit miners (often children) at risk, entire tributaries of the Amazon are poisoned. Yet these poor workers and the sex trade that follows, consume none of that - we do, the haves in a mostly have not world. Think of this as you use your cell phone, iPad, your hardwood furniture, do you know where it came from? Was it harvested, or raped from mother Earth for your benefit? Read: http://people.howstuffworks.com/conflict-minerals-congo-act.htm

[Gertrud Fremling]

How about reforming social security to make part of your pension tied to the incomes of all your CHILDREN? People without children generally have an easy time to save up enough for retirement anyway, so such a change should not cause too much distress or inequality. And it would encourage parents not just to have more children but also raise them in such a manner as to become productive, tax-paying citizens.

[Chris Bates]

You may have a point, but those that can not bear children are penalized through no fault of their own. Add a work related total disability and you have a statistical corundum, and having child for a meal ticket and there will be adult children spending their money on psychotherapy.

FYI: Social Security is not a pension, I think of it as a form of savings like whole life insurance, one which requires 10 years to get vested.

[Gertrud Fremling]

There is a fundamental problem with externalities here. A potential additional child is extremely likely to (in retrospect) value life. Unless there is expected to be severe crowding or food shortages, there will not much of negative consequences to other future individuals. The producers of children however cannot fully capture the positive externalities - the "utility" that future generations will enjoy. Economic theory clearly tells us that we should get underproduction. To take a concrete example, a family might well have one or two children simply because of the joy of children. But going beyond that may be viewed as too costly. Nevertheless, potential child #3 and child #4, if born, would be willing and able to pay the parents for the privilege of being born. As it is now, future children end up financing the retirement of all old people, with the parents themselves not receiving any additional share.

[Terry Bennett]

I like Gertrud's idea to put the incentive where it belongs.

If Social Security is life insurance, it is not being sold by an honest broker. As longevity increases and retirements get longer, I am skeptical that 7% of your income will really finance a third or more of your adult life. However, I do like the mental image of a statistical corundum.

[D]

There is sooo much land on earth. Its resources and our technologies will always be enough to live well. If every day people are born, many others die too. Then there are these natural disasters that play their part and make a balance again. But isnt technology more to blame than humans for over exploitation of resources. Im not for over population, but if I want to be against over population then these are the points that come to my mind.Thankx.
Sara