Fertility Rate Roundup #1
Previously: On Car Seats as Contraception
[Editor’s Note: This post assumes the perspective that more people having more children is good, actually. I will not be engaging with any of the arguments against this, of any quality, whether they be ‘AI or climate change is going to kill everyone’ or ‘people are bad actually,’ other than to state here that I strongly disagree. AI content will continue later this week.]
A common theme in childhood roundups has been that existing efforts by governments, to increase the number of children born in various countries, have all been pathetically small in magnitude. The amounts spent and methods used pale in comparison to what is at stake. We reliably see signs that the policies work, even when poorly designed and implemented - the same way that when policies attempt to reduce the birth rate, those work as well.
The core problem is the dose is too low.
Yes. If you give parents money, more people choose to be parents. And the amount necessary to make this happen is, if you crunch the numbers, an amount rapidly aging societies can’t afford not to pay.
The other theme is, as I discuss in On Car Seats as Contraception, that there are lots of other government policies that have much bigger impacts on the felt costs of having and raising children, including the lifestyle and status impacts of raising children.
This is a roundup of related efforts that have crossed my desk recently, to illustrate that this is a highly solvable problem.
Child care in America continues to be super expensive. People who understand economics understand that this is true because we combine large purchasing subsidies with onerous baseline requirements that drive up costs. Whereas you could (at least partly) solve this problem in the style of Vermont, by doing much less of both these things - removing price barriers for the bottom half and removing subsidizes for at least the top half, instead Giving Parents Money mostly in the form of lower taxes.
I also continue to think that it is madness to subsidize and massively favor professionally provided child care over family provided child care, where as far as I can tell most everyone agrees children are better off with family provided child care, which we are now essentially pricing out of the market. While in other contexts, of course, massively favoring family provided care via the tax code.
Alternatively, you could do what DC does (direct).
Requiring a college degree to provide child care is one of those places I fail the ITT.
Meanwhile Department of State proposes gutting the Au Pair program. They of course refer to this as things like ‘strengthening the educational component.’ By all reports I’ve seen the au pair program is insanely great as it is except it isn’t large enough. Win for everyone involved.
If prospective parents confidently knew they could participate in the Au Pair program, I would predict a substantial increase in the birth rate. This could be a full plan. Houses or apartments and locations could be chosen with this in mind, and life could be much easier to manage and predict.
A study in Finland finds that paying moms to stay home results in them staying home substantially more and working substantially less, including in the long term, whereas subsidizing child care and thus work (and by extension effectively taxing staying at home) has the opposite effect (although the paper’s results seem to not technically be ‘significant’, so salt as needed). You don’t say. You can either prefer to have mothers stay home or prefer to have mothers work, and people respond to incentives. You can get whatever change you want if you care enough. You do need to choose.
At People’s Policy Project, Matt Bruenig complains that ‘all twelve state parental leave programs are awful’ because they impose backward-looking work requirements that render many women ineligible exactly when it makes sense to consider having children.
Some of these are rather hardcore work-your-ass-off requirements. Others, such as ‘earn $300’ are not that. It does not seem like a crazy or undue burden to ask someone to find a way to earn $300. Then again, if it is so trivial, what is the point of the requirement?
The whole philosophy and approach behind ‘parental leave’ makes no sense. The idea is that employers, who can’t discriminate based on things like pregnancy, should be legally required to foot the bill for a long paid vacation upon the birth of a child, with pay proportional to your salary. If you don’t have a job, then no ‘leave.’ In that context, there are obvious huge problems if you don’t impose a work requirement.
What is the thing we actually want to accomplish here, though? Presumably it is to give new parents paid time off to be with their children. If you want to support new parents and give them the freedom to do that, then someone who isn’t working at all seems like they need the money as much or more than those who have jobs. If you don’t want discrimination to be an issue and you want employers to welcome the choice to become a parent, why do you want employers fitting the bill, in a way that is effectively a tax anyway?
The whole thing is backwards. You do need, given other decisions already made, to require employers to give parents leave. If you want new parents to also have money, a proposal I fully support, then you give them money.
Instead, we give employers double financial motivation to (illegally) discriminate against potential new parents and to discourage having children. They have to bear the leave costs and keep a job open for when the new parent returns, and we are pressuring people who don’t otherwise want to work to secure jobs in order to get paid leave, which is even more reason to be wary.
Declining Fertility Around the World
ACX links to this post on Iran’s rapidly declining fertility as direct result of government intervention, which the government now wants to partly reverse. He says ‘good luck, Hungary knows how that turned out’ as an echo of the general despair that government could ever raise fertility much with interventions.
As usual, I find it highly, highly suspicious that you have great power to change people’s choices in one direction but are utterly helpless to go in the other direction. I understand why the situation is asymmetrical, but at a minimum one can obviously stop actively screwing things up, and also people respond to incentives.
China and Australia
The New York Times says China is looking to increase its birth rates, but it’s so hard for government policy to change birth rates, Chinese government policy doesn’t have a record of dramatically changing birth rates or anything, oh no. The pull shows these graphs:
The change in 2004 was to bump the payment from $3k to $4k. So it was a thousand dollars perc child. Birth rates went up about 6% before peaking four years later.
This payment was curtailed in 2014 to levels below where the bonus payments started. Then birth rates resumed their decline.
This looks like a fantastically successful program. The previous trend was declining births. At the cost of $1,000 per child in progressive transfer payments, Australia seemingly raised births by 6%. That’s about $17k per additional birth. Insanely cheap. I am confident China would be thrilled to pay quite a lot more than that. America would be insane not to, we would save more money than this on long term interest rates on our government debt alone.
The Swedish policy change was to stop penalizing parental leave compensation on a second child for the time taken off after the birth of the first child. So essentially, Sweden was actively penalizing having a second child too quickly after the first via government policy. Then they stopped doing that, and the birth rate soared for over a decade. Consider how much this changed the rate of having two children in succession, if it raised birth by 31% (!) at the peak. It still has a 12% higher birth rate than Norway versus a slightly lower one before the speed premium. It was 4% higher than Finland before the speed premium, now it’s 21% higher.
This does not look to me like a temporary success. It looks like a temporary adjustment and also a permanent great success, from no longer penalizing exactly what we’d like to see, that has been overwhelmed by other larger factors. The paper linked above does a deeper dive, and agrees.
This also does not look like what I would call fully ‘trying.’
It is hard to estimate total cost of implementation of the policy, since behavior shifts in response and incomes vary as well, and the long term impact is confounded, but the only way to explain the data I can see is that families were quite sensibly mostly avoiding having children within the window where it would cost them tons of income, so we are mostly only paying new money for children that would not have otherwise been born, which means the average cost is the same parental leave we were paying other new parents anyway. The lunch, it at least kind of be free, and a decision already made.
A rough generous guess, based on median income, would be that Sweden’s parental leave policy costs about $65,000 per child when it is used. Given the impact and incentives here, where most people who would lose that kind of money before by not spacing their births would likely space births to avoid that happening, the cost per additional birth seems quite affordable.
As a new experiment, Singapore is going to increase its baby bonus by S$3,000 starting in 2024, which is about $2,250 USD, in a very expensive city. They will also pay for an additional two weeks of paternity leave. What do we think will be the impact?
Singapore’s birth rate was at lifetime 1.1 child per woman in 2020. The Australian example suggests an increase in births of 5%-10%. I posted a market on whether they would get a 3% increase, and one that measures relative to Hong Kong.
A serious attempt would be something more like S$100k. Then we would know if the damn thing worked or not. Even if the S$3k plus extra leave is a very very good deal, the measurement is still too noisy to know for sure, barring a gigantic increase.
I have created prediction markets on Manifold.
Will the birth rate in Singapore be at least 3% higher in 2025 than in 2023 (56% at writing time)?
Same market for 2024 vs. 2023, confounded by Year of the Dragon, is at 80%.
The market for 2023 relative to Hong Kong is at 41%. Presumably Hong Kong will have the larger Year of the Dragon impact.
Taken together, this suggests that a 3% rise in births is a reasonable expectation, at the cost of $2,250 per birth. That would imply about a $75,000 cost in transfer payments per additional birth.
This is with a relatively good implementation. A flat out baby bonus is going to have the most impact on people’s decisions per dollar.
This paper, providing a ‘scoping review’ of unconditional cash transfers for families with children in America, mostly serves to highlight gaps in understanding and that we know little about the most obvious intervention, and we certainly haven’t studied its effect on birth rates.
My previous estimate of cost, from the car seat post, was that such non-optimized efforts would cost $275,000 per additional birth. The gap with the Singapore estimate likely represents the gains from good implementation.
South Korea hit an all-time record low of 0.78 children per woman, down from 0.81. It is now ‘projected to have its population decline by 53% by 2100, up from a 43% decline projected in 2019, which strikes me as very similar to the solar power projections - why should one not expect further declines, under a baseline scenario?
What should we do about it? Give parents money?
Economists suggest Korea needs to do more to improve gender equality so that women feel less worried about losing their jobs by having children. High education and housing costs are among other factors putting pressure on fertility, data show.
The solution to raising fertility is to promote gender equality so that women can worry less about losing their jobs?
This is Obvious Nonsense. It does not make sense. Gender equality is a good thing for many reasons. Raising the fertility rate is not one of them. Not all good things go together. Finding out how to get them all at the same time is the problem one must solve, the solution isn’t to pretend they cause each other. Nor is gender equality helpful in making women worry less about losing their jobs.
It’s actually even worse than that, if you click through there is talk about ESG concerns. These are not the concerns of someone attempting to raise fertility. They are the concerns of someone who has other, standard, respectable concerns.
High education and housing costs, yes, those are concerns. Once again, have you tried either building more houses where people want to live (Seoul here, presumably), or giving parents money? I hear those might help.
For completeness, I looked at what’s going on in Hungary.
Hungary passed a law in 2019 exempting women with four children from income taxes, for life. This is the first effort that at least sounds somewhat like actually trying.
Yet when considered in detail, this was a rather terrible implementation. There is a mismatch here between what women and families want and what this is pushing them towards.
Even with a large income tax break, asking women to have four children is rather ambitious. The one-time payments for the first three children are not that different from zero, the main effect only kicks in if you have four. Then there is no substantial further benefit to having five.
The benefit then comes in the form of not paying income tax rather than a direct payment. That means that to get the benefit, the mother of four has to be working.
There are exceptions, but presumably if you choose to have four children in order to get financial benefits, what you want to do with that funding is stay home with your children. That’s not allowed here. The income tax benefits don’t even seem to pass to the father or husband, so they can support a family on their own. I do get it, given how easy that would be to game, but it doesn’t seem great. It also creates a very strange and huge incentive to have stay-at-home fathers, and to encourage various forms of tax fraud, I am sad I have not yet watched any movies about this.
All the incentives here are twisted and highly inefficient. Another problem is that most of the benefits paid are going, for a while, to go to women whose children were already born under the old regime.
Then early this year they extended the policy to all mothers under 30. If you have one child by 30, you are exempt from income taxes for life.
This essentially wipes out the four-child policy, other than retroactively. The number of women who are going to have zero children before 30, then have four or more later, is very small.
The new rule seems much more interesting. Hungary’s tax rate on personal income is 15%. So this is a permanent 17% boost in take-home pay if you have your first child before 30. That seems like a very strong incentive to have your first child before 30, even if you weren’t sure if you wanted one or not. Not as strong as a similar-expected-value one-time payment or guaranteed income steam. Still warping the tax incentives in very strange ways. Still pretty great.
Long term I am very curious to see what this does to tax rates. If the majority of Hungarian women do not pay income tax, that is going to require a substantial tax hike. It also will be very interesting to see the impact on earnings, and on the gender pay gap, and on norms of child care. If a couple gets married in their 20s, and knows that the women is permanently immune from income taxes and the man is not, so the women’s pay is worth at least 17% more, what happens?
It is too early to know what the new rule will do. What about the old rule, which had 4 years to work, together with other efforts? Those efforts include a maternity benefit of about $6k, marriage benefit of about $10k, a baby bond for each child, a super generous child care allowance, tax refunds and preferential mortgage rates for housing costs, extra vacation that scales with the number of children, you name it.
In Hungary the fertility rate has increased more than anywhere else in Europe, rising from 1.25 children per woman to 1.59 in 2021. According to demographic projections, this target is unrealistic, but some progress has nevertheless been made.
Most of that happened before 2019, and all of it before 2023. And there is a long way to go to get to 2.1. It still does show that some combination of efforts is having a real impact.
Still, this is an actual real start. Given the differences in costs and the weird implementation choices, it is difficult both to calculate the total cost and to translate this to an expected cost to do a similar thing in America.
One thing to notice about such costs is that they are transfers of resources rather than wasting or destroying resources. There is some additional deadweight loss here to account for, but in some real senses it does not ‘cost’ Hungary the full amounts involved.
The Quest for Kids
I assert that if we actually cared about there being more births, we have plenty of levers to make that happen. It is simply that no one has done anything remotely like the reverse of the one child policy in China, or Iran’s widespread push to discourage births. The Chinese effort and one child policy would fall into the ‘young adult dystopia’ book section if it was fictional.
Imagine for a second what the reversed version of those authoritarian and dystopian efforts would even look like. Realize that this too would be and is in the young adult dystopia book section. Also realize it has not happened, at least not in a long time.
What would the voluntary, freedom-and-gender-equality-compatible, non-dystopian and intelligent and efficient and sufficiently large version of such attempts look like?
The core effort would, like Hungary’s, focus on giving parents money. The more it was direct, immediate transfers, the higher the impact would be. The more it was forced to tie into work requirements and be gradual over time, the less impact. Even then, there is every reason to expect a roughly linear dose-effect curve in reasonable bounds, and for the price to be highly affordable.
Then comes the part that is harder to spell out, but even more efficient if it works, which is to make life better and easier, in both relative and absolute terms, for families in other ways. That starts with no longer forcing parents to live in fear of social retaliation or having their children taken away if their children are allowed to play outside on their own, and goes from there - the details here are beyond scope.
The core point here is merely to illustrate that yes, government policies absolutely can increase birth rates, and can do so at reasonable prices. Prospective parents choosing how many children to have, or whether to have children at all, very much respond to incentives about what their lives and finances would look like.
Does the Hungary legislation have an exception for women who host a surrogacy? If not…
In a country with the political stability of Hungary (annual inflation rate this January: 25.7 %) it is quite possible that the next government, or even the same government, will later reverse course and cancel the tax break.