Fertility has become a big business in the U.S., with Americans spending up to $3 billion a year on treatments, drugs, and methods aimed at enabling couples to conceive. Discussions of modern infertility have focused on cultural factors like the rising average age of marriage and the influx of women in the workforce, with studies linking it to environmental and medical elements from trans fats to toxins in cleaning products.
But what about economics? Can fertility rates be linked to financial incentives (or disincentives) to have children? Economists Alma Cohen, Rajeev Dehejia, and Dmitri Romanov examine this question in their new working paper, “Do Financial Incentives Affect Fertility?” Using data from Israel’s Central Bureau of Statistics on the “fertility history and detailed individual controls for all married Israeli women with two or more children during the six-year period 1999-2005,” the researchers compared fertility rates to fluctuations in government child subsidies (a monthly allowance paid to families with children), controlling for changes in eligibility or coverage. Their findings are summarized as follows:
We find a significant positive effect on fertility, with the mean level of child subsidies producing a 7.8 percent increase in fertility. The positive effect of child subsidies on fertility is concentrated in the bottom half of the income distribution. It is present across all religious groups, including the ultra-Orthodox Jewish population whose religious principles forbid birth control and family planning. Using a differences-in-differences specification, we find that a large, unanticipated reduction in child subsidies that occurred in 2003 had a substantial negative impact on fertility. Overall, our results support the view that fertility responds to financial incentives and indicate that the child subsidy policies used in many countries can have a significant influence on incremental fertility decisions.
This conclusion could be big news for countries like France, Germany, and Sweden, which, in the face of lagging birthrates (a problem the U.S. doesn’t seem to be having), have adopted “explicitly pro-natalist policies” to reduce the costs of bearing children. As for the U.S., the study points to the often-overlooked idea that fertility rates may be less dependent on cultural and medical variables, and instead tied to something more basic: the actual cost of having children.