It is the most significant economic and sociological challenge we face. It’s worldwide. It has been worsening for decades; and there is no reason to expect the trend to change.
People are not having as many children as they used to. Almost all the developed countries are below the “replacement rate” of 2.1 children per woman of childbearing age. (The U.S. number is 1.6.) Overall, two-thirds of the world’s population now lives in countries below the replacement rate.
If a country is below the replacement rate, its population will eventually peak and begin to decline. In fact, South Korea, Japan, and Italy are already experiencing shrinking populations.
What difference does that make?
A shrinking population means that per capita production (and therefore, consumption per person) will be lower than otherwise. But the bigger problem concerns elderly entitlements. Income and medical care for retirees are mainly financed by worker taxes on a pay-as-you-go basis all over the world. As the ratio of dependents to workers rises, countries will face an unending financial crisis.
There are four reasons why this is happening.
The opportunity cost of motherhood.
For most of the 20th century, a typical woman aspired to be a housewife and mother. In the interim, she chose occupations that accommodated her husband’s career. Teaching, nursing and secretarial work, for example, are in demand almost everywhere.
In the modern era, things are different. Women have entered such fields as medicine, law, business, and STEM in large numbers. Today, a majority of medical school students and law school students are female.
These changes mean that the opportunity cost of being a mother is much higher than it used to be. Dropping out of the labor market to raise children has become increasingly costly in terms of forgone income.
One study found that the “motherhood penalty”—the percentage by which women economically fall behind men due to children—ranges from about 20 percent in Denmark to over 60 percent in Germany. Although subsequent research suggests the penalty may be half that size, everyone agrees the penalty is real.
Not surprisingly, the decline in fertility among women is greater the higher their income and the higher their level of education (which is a proxy for lifetime income). A strong predictor of declining fertility, then, is higher per capita income. But income does not explain everything that’s going on. What other factors are there?
Children as consumption goods
For most of human history, children could be thought of as an “investment” that was moderately profitable for families. In pre-industrial societies, children were able to do useful work around the ages of five to seven. They began producing more than they consumed around the ages of 10 to 11. They reached a breakeven point in their 20s. Furthermore, children who survived to adulthood could be thought of as an implicit source of “retirement income” by their parents.
Between the late 19th century and the mid-20th century in the developed world, this transfer of wealth from children to parents was reversed. Wealth began to pass from parents to children instead. Changes that contributed to this were compulsory education (which reduced the amount of child labor) and government-sponsored pensions (which reduced the need for children’s support late in life).
If children are no longer seen as investment goods, the alternative is to see them as consumption goods. That means parents get satisfaction from the act of parenting and seeing their children mature and do well in life.
Two things follow from that. First, if parenting is primarily a consumption activity, then it competes against all other forms of consumption. If we compare life today with what life was like, say, in the 1950s, it is easy to see that our overall consumption choices have exploded. In this sense, the growth of other ways to amuse ourselves has an anti-child bias.
Second, parents’ desire to see their children “do well in life” causes them to focus on competition with other children. Invariably, that means parents tend to invest time and money to give their child a competitive advantage.
South Korea is perhaps the most extreme example of this. Roughly 80 percent of parents there are enrolling their children in private “cram schools.” In some districts in Seoul, children as young as 4 take entrance exams for English-language preschools. Others enter medical school prep tracks in elementary school. One teacher estimates that his elementary school-aged students spend at least 40 hours a week just on extracurricular classes.
As one Korean mother told the New York Times, studying outside of school “was necessary because academic achievement equaled opportunity, which meant a happy life.”
Of course, parents will be able to spend more resources on existing children if they avoid having more children. It is perhaps not surprising that South Korea has the lowest fertility rate in the world.
The cost of childhood competition
Increasingly, we seem to be living in a world in which we compete with each other for scarce resources: city apartments, concert tickets, seats at sporting events, etc. Many of the things we compete for involve children: scholarships, admission to elite schools and universities, etc.
If the way to ensure that your children do well in life costs money, then those who are not at the top of the income ladder are at a disadvantage in the competition. According to the Pew Research Center, in recent years, this disadvantage has grown.
In 2022, families earning $256,900 had seen their income grow by 78 percent since 1970. Middle-class households earning $106,092 experienced an income gain of 60 percent. Households with an income of $35,318 experienced an income gain of only 55 percent.
Having more children puts families in the bottom half of the income ladder at an even greater disadvantage. That may explain why the main reason for the drop in U.S. fertility is that parents with children are not having more children.
Government’s regulations
In response to a New York Times poll about “affordability,” housing, health care, childcare, and education topped the list. Each of these areas concerns children and each is heavily regulated.
For example, we ration access to public schools through the housing market. Yet zoning and other regulations have made access to the best schools impossible for most families. One study finds that rising housing costs alone since 1990 are responsible for 11% fewer children.
Families who buy their own health insurance are generally forced to buy in the (Obamacare) exchanges. Yet premiums in that market have grown twice as fast as employer-provided insurance premiums over the last decade.
In this and in many other ways, the government has made childbearing more expensive.
