Risk & Progress| A hub for essays that explore risk, human progress, and your potential. My mission is to educate, inspire, and invest in concepts that promote a better future for all. Subscriptions are free, paid subscribers gain access to the full archive, including the Pathways of Progress essay series.
Just a generation ago, the question we asked ourselves was…would there be enough food? Today, we ask ourselves…will there be enough of us? Instead of an uncontrolled population explosion, societies around the world are now grappling with the prospect of population implosions. One by one, governments are setting up fertility policies designed to encourage larger families. But how well do these policies really work and what does the data say about how we can improve them?
Why It Matters
Among the most shared essays on Risk & Progress argued that, in a bizarre twist of fate, in one generation, we have gone from worrying about too many people to too few. I made the case that when it comes to progress, scale matters. Economic growth models which track the steady expansion of human capability, are underpinned by an assumption that the population will continue to grow. This assumption is key, for current research suggests that population decline could lead to a dystopian world of stagnation. A larger population enables greater specialization of skills and the creation of more new knowledge. A shrinking one engenders the opposite.
Recent research, including a study published in The Lancet, forecasts that the world population will peak at about 9.7 billion in 2064, before falling to 8.8 billion by 2100. Fertility rates in 183 nations will fall below the 2.1 threshold needed to maintain a stable population. In more than 23 countries, populations will shrink by more than 50 percent. These include Japan, South Korea, Thailand, Spain, Italy, and Portugal. It’s hard to imagine what these societies could look like in 2100. I envision half-empty apartment blocks, decayed roads, and poorly maintained, underutilized infrastructure. Not exactly the “protopian” future we are looking for.
Of course, some will counter that a falling human population will bring environmental benefits. After all, fewer of us will presumably require fewer resources. However, the literature suggests that the population declines necessary to significantly mitigate human environmental impact would far exceed those forecasted by demographers. On the other hand, faster innovation, the ability to do more with less energy and fewer materials, would more meaningfully benefit the environment in this century. Counterintuitively then, population decline could, to the detriment of the environment, stunt the innovation required to improve the environment. Thus, modest population growth may ultimately benefit the environment more than negative growth.
Why Is Fertility Falling?
What is the cause of this global decline in fertility? In a 2008 study, Bruce Sacerdote and James Feyrer postulated that, to some degree, falling fertility correlates directly with the rising status of women in the modern world. That is, when women have few opportunities in the workforce, they tend to have more children. As their status and labor participation rates climb, they tend to have fewer children. In large part, this comes down to burden and opportunity cost. As a woman’s income increases, the opportunity cost of leaving the workforce, and taking on the time and expense of raising a child is simply too high.
Interestingly, measuring fertility is more challenging than it appears. The most widely utilized measure is the Total Fertility Rate (TFR), or the sum of fertility rates by age in a calendar year. However, TFR is highly variable and often misinterpreted as a measure of final family size. TFR statistics can be skewed when families choose to have children later in their lives. Ultimately, to get a sense of the true “fertility rate” we would need to look beyond TFR to complete cohort fertility, which looks at the number of children born to women at the end of their reproductive cycle. This number is not influenced by delayed childrearing as TFR is. Thus, it is more stable; countries can fluctuate between high and low TFRs while maintaining similar family sizes over time.
The problem with observing completed cohort fertility data is that it takes years or decades to observe trends because we have to wait for a cohort of women to reach a certain age. With such delayed data, it becomes near impossible to assess the impact that government policy has on fertility. As a consequence, researchers have developed alternative indicators that attempt to combine the best elements of completed cohort and TFR measures to observe fertility trends in a more granular fashion.
Do Pro-Natalist Policies Work?
With the measurement issues understood, do pro-natalist policies work? Yes…to an extent. Bruce Sacerdote and James Feyrer’s research reveals that fertility increases when the burden, the cost of raising children in terms of time and money, is shared. Indeed, the level of public spending aimed at families, measured as a percent of GDP, correlates fairly well with fertility. For example, a significant increase in family spending in Sweden from the 1960s through the 1980s led to an increase in fertility relative to other Scandinavian countries. However, how these financial resources are allocated matters a great deal. Policy responses to falling fertility fall into three broad camps: 1) parental leave schemes, 2) childcare assistance, and 3) financial assistance. Research indicates that the impact of each varies considerably.
Parental leave schemes are often government-funded, aimed at giving new mothers (and sometimes new fathers) time off of work to recover and care for a newborn child. Depending on the duration of that leave and the level of pay, such schemes, in theory, make it easier to have a child. However, studies on parental leave are mixed as to whether or not they boost completed fertility. Indeed, one study of 15 European nations found no effect on completed fertility for expanded parental leave programs, while others have estimated small reductions in childlessness. In sum, the data suggest that parental leave schemes have small, if any, effects on the number of children ultimately born.
On the other hand, the effects of childcare assistance, are more clear. Policies like publically provided daycare services are positively correlated with higher fertility. For instance, Luci-Greulich and Thévenon (2013) estimated that in OECD countries, a 10% increase in childcare enrolment would increase the tempo-adjusted TFR by 0.08. This is especially true when the childcare is of high quality, aligns with parents’ working hours, and is long enough in duration to bridge the gap between parental leave and public schooling.
Financial Assistance, that is, direct or near-direct cash transfers, also appear to be an effective policy tool. In one study, Kevin Milligan evaluated the Allowance for Newborn Children (ANC) that ran in Quebec from 1988 to 1997. In this scheme, families were provided direct cash benefits for every child they had. The payment size was determined by the birth rank of the child, with payments made quarterly up to a total of $8000. The introduction of the ANC saw the fertility rate of Quebec increase relative to the rest of Canada. His findings conclude that the fertility rate of eligible recipients increased by 12 percent on average. Similarly, Azmat and González (2010) estimated that an added tax credit for working mothers with children under the age of 3, alongside an increased tax deduction for families in Spain, led to an increased probability of new births by about five percent.
Designing A Family Package Policy
To preserve the right of women to work on an equal footing with their male counterparts, while also ensuring a sustainable population, policymakers should seek to mitigate the burden and opportunity cost of having children. Which policy should they choose? Childcare assistance, direct cash transfers, or parental leave? My answer to this question is “yes.” The most effective policy prescription is likely to be an “all of the above” approach, but for reasons that go beyond a discussion of fertility.
It seems to me that new mothers should have fully paid parental leave of a minimum of six months. This number is not arbitrarily chosen. It is recommended by the World Health Organization that newborns breastfeed exclusively until they are six months old. Breastmilk contains crucial disease-fighting antibodies and is associated with long-term well-being, including reduced risks of diseases like obesity, cancer, and asthma. Thus, giving newborns the greatest opportunity to receive these benefits is as much a health issue as it is about fertility. Indeed, the cost of providing six months of fully paid leave for new mothers may pay for itself by reducing healthcare expenditures later on.
With that said, to make this leave period any longer, even if paid, could backfire for it risks undermining the careers of women. As the data suggests in countries where longer leave periods are mandated, many prospective employers (quietly) become reluctant to hire young women knowing that they could lose an employee for more than six months at any given time. This is not the outcome we want either, so balance here is required.
As we have seen, childcare assistance is crucial for bridging the gap between parental leave and public schooling. Here, we may institute a voucher program that provides all parents with a voucher that would cover the cost of preschool or daycare. This system would function a great deal like an education voucher system for funding public schools. The merits again, however, go beyond encouraging more children. PISA (Programme of the International School Assessment) survey research conducted in 2015 illustrated that quality early childcare programs, when combined with generous public expenditures on early childcare, are correlated with better performance at school at age 15.
Alternatively, instead of using vouchers, we could fold a direct cash assistance scheme into a childcare initiative by providing new parents with financial assistance that would cover the cost of childcare plus additional subsidies for raising the child. The advantage of direct cash assistance would be lower administrative costs and greater freedom for parents who could choose to use the funds in any way they saw fit. They could hire an au pair or a nanny, register for childcare, or simply keep the funds and stay home with their child.
Ideally, direct funding would function much like a child tax credit, except that it would be fully refundable and paid in installments throughout the year. Payments would be made to parents for each child they are raising. To fund it, we would best turn to Land Value Taxes (LVT). To learn more about LVT, please see my work on this topic here. LVT is ideal because unlike income taxes or corporate taxes, LVT does not impose any deadweight loss on the economy, and only taxes “unearned income.” Therefore, LVT does not force anyone to hand over their hard-earned income to someone else.
Here again, the benefits of cash child allowances appear broader than merely raising fertility. In a study by Irwin Garfinkel et. al., researchers performed a systemic review of cash and near-cash income transfer programs. The literature was nearly consistent: the long-term effects of cash transfers are overwhelmingly positive. Their research found that children provided these benefits had better health, longer lifespans, increased future earnings, and a reduced probability of being incarcerated. They estimated that a permanent $1000/year expansion of the child tax credit in the US, similar to the one passed in the American Rescue Plan, would cost $97 billion per year but lead to $982 billion in net social benefits annually.
More of Us
Perhaps our shrinking numbers will not be as big a problem as some believe. But we should not be naive to assume that shrinking populations will bring utopia either. Nor should we assume the above policies would work in a vacuum. Strong economic growth and affordable housing, for example, are also good predictors of fertility. We need a comprehensive and coherent policy framework that enables maximum human potential. The humans will naturally follow.
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“Strong economic growth and affordable housing, for example, are also good predictors of fertility.”
I think this is the most critical root cause. Even wealthy people today experience housing precarity due to the outrageous cost of housing. This makes couples risk averse; fertility naturally (and wisely) drops when people don’t feel confident in their ability to create a stable environment for children.
While we can and should make progress on many other fronts to make parenting easier, none of it will be enough to overcome housing scarcity.
I think we should treat life extension more seriously too. Low birth rates aren't a problem if people aren't dying and stay healthy. This would exactly allow for gradual slow population increase.
It of course raises other concerns about how this society would work and if forever young people would maintain freshness of the mind and stay productive members of society. Idk, but I wish to find out. Overall it seems to me that we can make this world work.