The Economic Determinants of Fertility Choices

Key Points

  • The demographic transition toward an older population is ongoing in America and Europe. The transition began earlier in Europe where fertility rates have declined much more. Will America follow in Europe’s footsteps?
  • Procreation and family formation appears influenced by the social and economic conditions facing young adults. Younger American women appear to be postponing childbirth. Will this reduce future American TFR to still lower levels?
  • Government policies influence the economic environment and affect fertility choices indirectly. Social Security and various retiree health programs have likely reduced fertility, making their own financing more difficult.

The Economic Determinants of Fertility Choices

Introduction

A key contributor to economic growth is population growth. But developed countries are failing to achieve even the replacement level of the total fertility rate (TFR)1: About 2.1 live births per woman over her lifetime.

America’s TFR averaged just below 2.0 during the last two decades whereas Europe’s maxed out at 1.6. The Great Recession of 2008-2009 initiated a sizable decline in the U.S. TFR, which registered 1.87 in 2013.


Figure 1: Historical and Projected U.S. TFR

Source: Social Security Trustees' Annual Report, 2014.


Fertility decline after a recession may reflect the postponement of childbearing, as people tend to put off having children when times are stressful. During the Great Recession, however, young adults suffered income declines, experienced difficulties in finding jobs, and faced difficulties obtaining home loans because of tightened bank lending standards.

Will the economic recovery also induce a fertility recovery – as occurred after the economic recession of the early 1980s? The Social Security trustees, who track fertility closely and make future projections, expect the U.S. fertility rate to recover to its pre-Great-Recession level of 2.0. Thus far, however, the expected fertility recovery has not materialized.

The Changing Demography of Motherhood

While it’s indisputable that economic and social factors are among the key drivers of fertility decline, there is little agreement among social scientists about what they are and how they operate. Much of the action appears to be at the younger end of the fertile age range among women. For example, childbirth among female teens has declined significantly in recent years. While the rate of giving birth for teenagers aged 15 to 19 was 61.8 per thousand in 1991, it declined to just 26.5 per thousand by 2013.2 Statistics on mothers’ ages at childbirth show that many younger females are postponing childbirth, possibly planning to recapture fertility before crossing the age threshold of permanent fertility loss. Indeed, statistics also show that fertility rates have crept upward for women in the late 30s and 40s. Thus far, however, the contemporaneous decline in fertility rates at younger ages has been more pronounced than the increase in fertility rates at older ages (Figure 2).


Figure 2: Historical and Projected Fertility Rates per 1,000 Women by Age

Source: Social Security Administration.


While women continue to postpone childbirth, fertility recapture at older ages may turn out to be more difficult than anticipated. The average age of first time mothers rose from 24.2 in 1990 to 26.0 in 2013. The U.S. Social Security Administration projects that such postponement of childbirth is likely to continue and it will increase women’s age of peak fertility to 30 by the end of the current decade.

Comparison with Europe

The demographic transition in Europe is undoubtedly several years ahead of that in the United States. Compression over time of the fertility age distribution is ongoing in the United States (Figure 3). But if Europe is any guide, there is more scope for the fertility decline among youth to continue. On the right hand side of the fertility age distribution, U.S. fertility is already almost as high as that in Europe, suggesting relatively smaller scope for further expansion as women approach the age of total fertility cessation.


Figure 3: Fertility Rates per 1,000 Women in the United States and Europe

Source: Social Security Administration.


One factor that is associated with the decline in TFRs is the concomitant increase in female educational attainment and labor force participation. There are now greater opportunities for women to acquire more education, pursue rewarding careers, and remain financially independent. Growing compensation premiums for highly educated and skilled workers and greater time intensity of upper echelon jobs have increased the opportunity costs of childbirth, inducing women to postpone and possibly forgo childbirth altogether. The same factors likely make it more difficult for them to recapture fertility at older ages.

Improved career opportunities for women also appear to have induced an attitudinal shift within society regarding childbearing and have altered social norms in favor of early career development and later family formation and procreation.

According to Figure 1, the U.S. Social Security Administration projects an increase in fertility rates during the next few years as the economic recovery continues. But the fertility recovery remains highly uncertain as women continue to postpone childbirth and focus more on economic advancement. Indeed, the Social Security’s 2015 Technical Panel on Assumptions and Methods has recently advised the Social Security trustees to reduce their long-range assumption on fertility for projecting the program’s financial condition.3

The Economics of Family Formation

There is even less agreement about how public policies affect family formation and fertility choices and about the size of such effects. Because government taxes, expenditures, and regulations influence the social and economic environment in which fertility decisions are made, their effects are unlikely to be zero.

Economist Gary Becker, successfully propagated the consideration of family formation and childbearing as economic decisions. He argued that people make such choices to improve their own wellbeing. When family incomes increase, the “opportunity cost” of raising children also increases, lessening the desire for larger families. He further argued that parents invest more for children's education when economic success is achievable. Parents may view family formation and childrearing as a form of saving – for ensuring resources for their own care during old age.

An alternative view of family formation and procreation emphasizes the inherent drive to survive – as a way of countering the finiteness and impermanence of one’s own life. Thus, the family and children may be viewed as the extension of one’s personhood and kind. Under this view, fertility and family formation choices are autonomous and not conditioned by economic factors, social environments, or government policies.


Figure 4: Percentage Point Change in TFR for Every 1 Percent Increase in Budget Expenditure by Type of Expenditure

Source: PWBM calculations based on data from Eurostat.


Figure 4, which shows results based on statistics on fertility and government expenditure-to-GDP shares during 1990-2013, supports the Beckerian view. Under the widely varying socio-economic conditions across Europe, cross-national variations in the TFR appear systematically associated with variations in spending on social security, health, education, domestic security, and other budget purposes. For example, the first bar shows that the TFR is negatively associated with expenditures on Social Insurance: European nations’ TFRs are lower by 0.1 percentage point when budget expenditures on social protection are higher by 1 percentage point. The implication is not that spending on social protection is undesirable, but that its association with reduced fertility suggests of an unintended negative impact on the sustainability of social protection programs through reduced fertility. That is, larger social protection expenditures to support retirees appears to reduce the “demand for children.”

Statistical calculations also show that other choices related to family formation also exhibit systematic association with government budget expenditures: Average ages of mothers at first birth are lower in nations where health care expenditures are larger. And those ages are higher in nations with larger education spending. These results appear to be consistent with the “children as investment goods” view.

Conclusion

Fertility changes appear to be systematically related to government policies. Europe’s low fertility is ominous for the United States because the population-age wave is much further along in Europe. Greater educational and career opportunities for women appear to increase the “opportunity costs” of childbearing and childrearing. In addition to the pull of education and career potentials is the push from higher taxes: Growing financial burdens on the young for funding government social protection programs have propelled more women to join the labor force to sustain their own and family living standards. Consequently, procreation and family formation hinge crucially on women’s income and opportunity costs.

Overall, the evidence suggests that fertility would likely increase if government expenditures were retargeted toward younger generations by way of child care subsidies, child tax credits, maternity leave regulations, and subsidies for women’s health care related to fertility. Such changes will also likely reduce strains on Social Security and retiree health programs.


  1. The TFR measures total live births on average during female reproductive years. The replacement TFR level exceeds 2.0 to account for infant mortality.  ↩

  2. Joyce A. Martin et. al., “Births: Final data for 2013,” National Vital Statistics Reports 64, no. 1 (National Center for Health Statistics, January 2015). Available at: http://www.cdc.gov/nchs/data/nvsr/nvsr64/nvsr64_01.pdf ↩

  3. See Chapter 1 of the Technical Panel on Assumptions and Methods (2015) of the Social Security Advisory Board available at: http://ssab.gov/Portals/0/Technical%20Panel/2015_TPAM_Final_Report.pdf?ver=2015-09-24-113145-693.  ↩