U.S. Baby Bust Fears Inspire a Radical Policy Proposal
Is the solution a "fertility dividend" that makes a portion of a person's Social Security benefit dependent on each of their offspring's earnings?
"Birth rates in America are declining, leading to one of the lowest rates of population growth on record, soon to become the lowest ever," declares a new report on falling U.S. fertility by American Enterprise Institute (AEI) adjunct fellow Lyman Stone. "This will likely have far-reaching negative economic consequences." As fewer children are born, the average age of the population also increases. The median age of the U.S. population was 28 years in 1970 and is now 38 years.
Setting aside the consequences for the moment, let's look at the trend and the associated possible causes.
Roughly, the total fertility rate (TFR) is a calculation of how many kids a woman beginning her childbearing years now would have over her whole life if current birth rates remain stable. Conventionally, the replacement rate—that is, the number of children each woman should have over the course of her lifetime in order to maintain the current population—is defined as 2.1 kids per woman.
Stone convincingly argues that based on current birthrates the U.S. TFR is likely in 2018 to fall to around 1.74 or 1.75 kids per woman—the rate last seen in the early 1970s. And given the trajectory of births among Millennial women, he argues that American TFR is likely to fall to as low as 1.5 or 1.4 children per woman, rates that are currently found in southern and eastern Europe and East Asia.
So what is driving U.S. fertility rates lower? Stone suggests five reasons: Increasing student debt, decreasing young adult homeownership, rising years enrolled in tertiary education, higher childcare costs, and cultural mores requiring intensive parenting.
Comparisons with other western countries undercut the salience of Stone's list of five fertility-reducing factors a bit. Consider increasing student debt: In many European countries student debt is indeed rising, but university tuition and student living costs are still quite low. One particularly interesting case is Germany, where the expected cost of an undergraduate degree is about $2,200, and student debt is approximately $2,400. The German fertilty rate just hit a 43-year high at 1.5 children per woman. Meanwhile, no tuition and fees for public university education are charged in Brazil (TFR 1.73), Denmark (TFR 1.71), Finland (TFR 1.65 ), Norway (TFR 1.72), Poland (TFR 1.32), or Hungary (TFR 1.45).
With regard to homeownership, it is notable that the U.S. homeownership rate during the height of the Baby Boom (TFR 3.77) was 55 percent in 1950 and 61.9 percent in 1960. The homeownership rate peaked in 2004 (TFR 2.05) at 69.2 percent, and in the wake of the Great Recession, fell back to 62.9 percent in 2016. That is the same level it was at in 1965 (TFR 2.91). In addition, expectations about housing have changed. AEI economist Mark Perry has calculated that while the cost of building a new house has hovered around $120 per square foot since the 1970s, the average size has grown by nearly 1,000 square feet. Consequently, even as the average size of households has dropped, the average square feet has increased from 551 to 1,058 per person.
Rising years of enrollment is indeed a salient factor in reducing fertility, especially since more women are going to and graduating from college. As International Institute for Applied Systems Analysis demographer Wolfgang Lutz notes, "Almost universally, women with higher levels of education have fewer children." As Stone observes, more women are putting off child-bearing in order to complete their educations. In addition, educated women tend to take advantage of the greater economic opportunities outside of their homes, which also results in reduced fertility. Still, it is interesting to note many developed countries with lower percentages of their populations with bachelor's degrees or higher have lower fertility rates than the U.S., including Denmark (TFR 1.71), Germany (TFR 1.5), and Italy (TFR 1.35).
What about rising childcare costs? European countries that offer higher levels of government childcare support tend to have higher fertility rates than those that don't, but even in those countries, TFRs are below replacement, including in Denmark (TFR 1.71), Germany (TFR 1.5), and the Netherlands (TFR 1.66). It is likely that further subsidizing child care here would marginally increase fertility, but is not likely to boost it back to replacement or above.
Stone's fifth observation is that parenting has changed considerably from the good 'ole free range days of the Boomer generation, when kids could roam their neighborhoods and streets largely unsupervised. Modern parents are expected to devote huge amounts of time and money to nurturing their children; every child must have their own room, their own piano lesson, and their own soccer team. Stone is probably right that such demands prospectively tire out nearly anyone contemplating the burdens of child-rearing.
Interestingly, Stone does not explicitly consider another trend that correlates strongly with falling fertility: urbanization. It is a general rule that rural families have more children. In 1950, 60 percent of the U.S. population lived in urban areas, and now nearly 84 percent do. While rearing children in cities tends to cost more, the distractions of economic and entertainment opportunities afforded city dwellers also contribute to lower fertility rates.
So what about the negative economic consequences that worry Stone? He dwells chiefly on the problems that falling fertilty poses for intergenerational ponzi schemes like Social Security and Medicare. Unless new suckers, ah, citizens are born to contribute to these social welfare rollover plans, they will become ever greater drags on the economy. He hints that future parents may end up coping with the implosion of social welfare the old-fashioned way, that is, by bearing more children who can take care of them in their dotage.
Stone's novel idea to solve Social Security insolvency is to adopt a "fertility dividend" that would make "a portion of a person's Social Security benefit dependent not on their earnings but on their offspring's earnings." As Stone further explains:
Having kids, and particularly having kids who get a good education and a good job, would directly enhance a person's retirement prospects. An individual's choice to have children does more to keep Social Security solvent for the future than even high earnings during their working years, and thus rewarding retirees based on child contributions would more closely align the incentives of current workers and families with the actuarial needs of intergenerational social insurance plans such as Social Security and Medicare.
Stone does admit that his fertility dividend proposal is "almost certainly impossible to implement."
Does falling fertility neccessarily lead to economic enervation? Perhaps not. In their 2017 American Economic Review article critiquing this notion, economists Daron Acemoglu from MIT and Pascual Restrepo from Boston University "show that since the early 1990s or 2000s (the periods commonly viewed as the beginning of the adverse effects of aging in much of the advanced world) there is no negative association between aging and lower GDP per capita." Why not? In a word: robots. The two report that their analysis "shows that when capital is sufficiently abundant, a shortage of younger and middle-aged workers can trigger so much more adoption of new automation technologies that the negative effects of labor scarcity could be completely neutralized or even reversed."
Basically, if technological progress can boost productivity sufficiently, rising wealth would still be able to pay social welfare bills as they come due. Who needs kids when you've got robots?
Oddly, Stone mentions only in passing that immigration could substantially ameliorate his economic concerns so long as fertility in other countries remains above replacement.
How immigration contributes to economic vitality is highlighted in a fascinating new study that projects the economic consequences of zero international migration into the European Union (EU). The study found that without extra-EU migration the population of the 28 EU countries in 2060 would be 75 million lower than with migration, i.e. a 14 percent population reduction. Even worse, the working age population would be 20 percent lower. The overall 2060 EU real GDP would be 23 percent lower (Italy -33 percent, Spain -28 percent, UK -19 percent, Germany -35 percent, France -18 percent), than it would be with migration. In 2060 the EU GDP per capita with migration flows would be around $57,000, but it would be 10 percent less ($51,000) without migration.
Stone glumly acknowledges that the many pro-natality programs tried in other countries have not resulted in sustained increases in fertility. In other words, people worldwide are exercising their increasing reproductive liberty to trade off between the satisfactions of career and the myriad diversions offered by modernity and the pleasures of child-rearing. And that's a good thing, because the downsides of the pre-18th century Malthusian world of high fertility and high mortality were much greater than whatever difficulties our modern world of low fertilty and low mortality may bring.