ABSTRACT

“The Economics of Fertility: A New Era,” Matthias Doepke, Anne Hannusch, Fabian Kindermann, and Michèle Tertilt, April 2022, NBER Working Paper No. 29948, JEL No. D13,J13,J16

Economists who study the subject of human fertility have traditionally tried to explain two empirical observations in the real world. One of these empirical observations is the fact that in many countries, there is an inverse relationship between fertility and income levels. That is, as income levels have risen across the world, fertility levels have dropped significantly. In fact, in many countries in the western world, fertility is at below replacement levels at the moment and governments are trying to incentivize people to have more children. The second important empirical observation has been the inverse relationship between women’s participation in the labour force and their fertility levels. That is, as women’s participation in the labour force has risen over the years there has been a fall in fertility levels.

Economists have generally explained the inverse relationship between income and fertility as due to the decision among modern households to invest in the quality of children that they raise over the quantity of children that they make. In fact, some economists have argued that the decision of households to invest in child quality over child quantity was what helped many countries to build modern economies marked by high productivity. So, according to this view, when many households decided to have fewer kids and also sent these kids to schools to gain various skills over a number of years, for instance, this helped boost the productivity of the economy.

On the other hand, the inverse relationship between women’s labour force participation rate and fertility has been explained in terms of the costs involved for women who are employed when it comes to having and raising children. As more women have entered the labour force over the decades, the opportunity cost of bearing and raising children has risen and led many to have fewer children. For example, a working woman has to forego earnings over a considerable period of time when she spends time out of the workforce to have and then raise children.

Women’s labour and fertility levels

In “The Economics of Fertility: A New Era”, researchers Matthias Doepke, Anne Hannusch, Fabian Kindermann, and Michele Tertilt argue that the two empirical observations discussed above that have guided economists till date no longer hold true in large parts of today’s world. They argue that the inverse relationship between income levels and fertility has either flattened or reversed in many high-income countries. Even more surprisingly, there is now a positive rather than a negative or inverse relationship between women’s labour force participation rate and fertility levels across many countries. That is, even as the participation of women in the labour force has risen there has also been a rise in fertility levels. The researchers argue that there may be various reasons for the drastic change in these empirical observations that have guided mainstream economists for many decades now.

Women today, for instance, get more support from their family, the state, and others when it comes to raising their children. Employment conditions may also be better suited to the needs of working mothers, thus encouraging more working women to have more children. Changes in social norms and support for working mothers may have also helped in the rise in fertility levels at a time when women’s participation in the labour force has risen, the researchers say. All these factors together may have helped lower what is known as the “motherhood penalty” that women incur when they choose to work.

What this means for old theories?

What does this all mean for the old theories that economists used to explain empirical regularities observed in the past? It would be hard to completely dismiss them because the opportunity cost of making and raising children will always have an effect on the decisions made by households. Whether it is the 19th century or the 21st century, a woman who is thinking about having children will still factor in the opportunity cost of having a child in terms of lost potential earnings. Similarly, households’ decisions on whether to invest in the quality of children they raise or rather increase or decrease the number of children they have will also have an effect on fertility regardless of the times that we live in. In other words, these are truths that always hold true even though empirical observations may lead us to believe that they don’t matter anymore. It may just be that the effect of income levels and labor force participation may be blunted now by other factors such as social norms, family and state support, etc. Also, the influence that societal views on the idea of having children may have on households’ decision to have children may be a topic of interest worth exploring by social scientists. After all, it can have a significant effect on the cost that households are generally willing to bear to have and raise children.