The pattern around the world of fertility is the same. Between 2010 and 2020 there has been a significant drop. This comes after relatively positive increases up to 2010. Levels did not climb back to “replacement level” but at least they seem to be going up. Countries such as France, Sweden, the USA, and the UK had maintained levels close to two. They all dropped, especially in the UK, to 1.7 on average. The reason was simple. Women were delaying the time they had their first child. It went up from “first child” at 22 to 31 between 2000 and 2010. This produced an initial decline followed by an increase. Those same women, when did have children, had fewer.
Economists and demographers have poured over the data trying to understand the decline. They have looked at education levels, income levels, race, and many other things to find a pattern. A pattern that would show why the decline was happening. The only clear finding was that teenage pregnancy was almost down to zero. Economic theory does not look at fertility but models “demand for children". It views children as a source of “utility”. There is a second decision about how many children. This is called in economics “Quality Children”. How much do we want to concentrate our resources on a limited number of children? A recent US study concluded that there was no simple pattern. Instead, they postulated a cultural shift away from parenting.
The Most Expensive Country in the World to Bring Up Children?
The answer is South Korea. Followed by China. The YuWa Population Research Institute in Beijing studied the costs across 13 Countries. They included everything needed to raise a child to the age of 18. Everything from the birth, the clothes, the food, the housing and of course the education. Their average amount for China was $76,760. This may not seem much, but it was 6.9 times the average GDP per head. The South Korea cost was 7.79 times. The US was 4.11 and places like Australia and France just above 2. The UK was 5.25. These numbers reflect to a large extent the government support offered. How much of the necessary services were free. In Shanghai it costs 1m Yuan to raise a child or $157,000. It is a very prosperous micro-region (Newsletter #121: “Ageing is a Universal Issue”).
In 2020 the fertility rate across China was down to 1.3 children per female. In Shanghai the number was 0.74 and Beijing 0.87. Separately the authors went on to suggest what it would cost to “fix” the fertility problem. In provinces such as Guangdong the government is already paying $510 per month for each child. China, they estimated would have to spend $314bn per year for the next decade. Military spending is estimated to be $230BN. But, this was not just for payments to parents. They argue the need for subsidized housing, childcare, parental leave etc.. Everything needed to support families. Much of the cost is for education. Public Schools are not available to migrant workers without the requisite permits. It is one reason that the Chinese Government banned the whole tutoring industry. Parents were restricting the size of their families so they could afford the best education and tutoring (The Quality Child Theory).
Will cash incentives alone work?
There is a relationship between these costs and fertility at the country level. But economic studies have shown that the current level of incentives is having little impact. Italy has a fertility problem. The Italian Statistical Office, ISTAT, was quoted recently as giving a population forecast of 48mn in 2070. That was a big decline from the population of 59mn last year. They based this on a rebound in fertility rates to 1.5 children per female.
It was in 1976 that Italian fertility fell below the replacement level of 2.1 children per female. It fell as low as 1.20 in 1996. The “I will delay my first baby rebound” brought it up to 1.45 in 2010. It is now declining again. The average age of having a first child is 32.4 years. It has not reached a fertility level of 1.5 since 1983. Only one region in Italy meets the target level — Trentino-Alto Adige at 1.51. The UN is forecasting a bigger decline by 2070 to 44mn.
According to ISTAT the country is now in a vicious cycle. Fertility has been declining long enough that it is affecting future births. Most of the decline in babies is due to the reduced number of women of childbearing age. To a much lesser extent is it due to their low propensity to have children. To try to solve this problem the Government has initiated many measures. Since 2021 parents receive between €50 and €175 a month for each child. VAT on infant products was removed. There are tax breaks for parents.
Female commentators, writing in the Financial Times, point out that this does nothing to tackle the underlying cultural problem. Many women see raising children as either ideologically or practically incompatible with working. The assumption in society is that Italy supports family values. The stereotype is of “the devoted mother sacrificing themselves for their children”. A recent survey said that 46% Italians would ideally want two children. 25% would want three or more children. Totally at odds with reality.
As a result, society assumes that children will remain at home with their mothers until they are six. There is very limited public childcare and private care is expensive. Children go to middle school from 11-14. The school day finishes at 1pm. They do not have canteens to feed the children. They do not offer after school activities. The assumption is that they will go home with their mothers for lunch.
The result is evident in a recent Bank of Italy report. They compared women who started with the same background, skills, and education. They were earning the same salary. After fifteen years, those that had children were earning half that of their childless companions. How much of a financial incentive will the Government have to offer to swing the balance in favour of children? If something is not done the working population will shrink. The Italian consumer market will shrink. There will be massive internal migration leaving the countryside even more empty.
Fertility cannot be modelled using simple socio-economic models. A recent study suggested that higher fertility was associated with a higher female employment rate. This seems at first sight to be illogical. It makes sense if it takes two incomes to raise a child. It takes two fulfilled parents to want to start a family. It takes society to make that possible.