Can Economic Incentives Get You Pregnant?

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.


There is a very strong tendency - and it has little to do with birth control - that families have, on the average, about as many children as they can afford without downgrading their lifestyle.

Having a dirt-poor kid is pretty cheap, and having a second (or seventh) one is substantially cheaper.

Having a rich kid is expensive, and having a second (or seventh) one is similarly expensive.

Rich families have fewer children on average than poor families, and this has been a known fact since at least the early 1800s. It's how David Ricardo finally convinced his friend Thomas Malthus that Malthus' "Essay on the Principle of Population" - the source of his reputation as a doomsayer - was probably wrong.

Now the UN is telling us that, as even the "third world" gets richer, the world population will probably go into a century-long decline after about 2075.




I have relatives in Spain and according to them, it comes down to the difficulty of getting a good job, not government family freebies. This is a very regulated economy, with rules galore.

A woman who takes time off from work to raise a child for a few years will be lucky to find another one when she's ready to return to employment. Hence, one child or none, and if one, then they don't take off more than a few months.


So true! France is a perfect example especially for all of the Sicko fans out there. Government employees will visit the houses of new mothers to do their laundry or cook or help out however they are needed. France's population growth after WWII increased more than anyone even expected and continues to be slightly higher than the rest of Europe.


The problem with trying to measure the effect of financial incentives on birth rates (at least in western nations where birth control is widely available), is that unlike many things, children can be anything from a luxury to an accident, depending on the situation of the parents.

world traveler

I don't think anyone does a crude calculus of having 10 to keep 5, but I imagine that the same educational deficit that leads (and results from) poverty and poor medical care for the kids also causes reduced use of birth control. In many countries where education is not free, the middle classes have fewer children to reduce tuition bills - but the infant mortality rate is also lower. One could argue that investment in educating a smaller number of children would still produce a return at old age.

(To adoptivemom: fertility is much easier to count than willingness. When I was in college, the polls of poor women suggested they would limit their fertility if they could get the means and/or cooperation from partners.)


The economy of the country is very much tied to the fertility of the country. Poverty stricken nations will often be populated with mothers that need to produce in order to maintain their way of life, for example, to maintain the number of farmhands available.

But as we see as these mothers become more educated and are able to get jobs outside of the home, the fertility drops significantly. More educated mothers would usually imply more educated daughters and the circle continues until the birthrates have dropped significantly. Well educated working women is the key to decreasing birthrates.

AND...Not only is religion a factor, but the degree of extremism in the religion is a factor whereas the more extreme versions of each and every religion will encourage more children, from Judaism to Christianity to Islam.

Its all a mixture of logical economic incentives and beliefs (note: the word logical was left off of the word beliefs)


Avis II

As per the 2001 census, 72.22% of Indian people live in more than 550,000 villages.


In 2003, the National Sample Survey Organisation (NSSO) of the Ministry of Statistics of the Government of India published in it's report of the first ever "Situation Assessment Survey of Farmers" that the average household size of the Indian farmer is 5.5. I'm from India and believe me that that's not much of a joint family.

@Justin James - People don't, like, try to create 'x' number of progeny by ballparking...It doesn't work like "Hey let's make 5 kids, then at least 3 will make it and one of those will earnt a decent living to support us." Not in India, at least. People don't starve to death here anymore under normal conditions. I furnish some stats from the 2001 census to support my case.

Life expectancy at birth:
total population: 68.59 years
male: 66.28 years
female: 71.17 years

Infant mortality rate: total: 34.61 deaths/1,000 live births (2007 est.) female: 29.23 deaths/1,000 live births male: 39.42 deaths/1,000 live births


@ World traveler - "...children are still key to old age income." This is true. However, you must also take into consideration that over here in India, especially among the rising middle class (up to 30% from 10% in the past 20 years) kids are supported well into their education, i.e. even into grad school. Having a girl child is all the more expensive depending on what social caste you're from, as this determines the dowry her parents pay to the grooms family, if any, at the time of the girl's marriage, which may fall as soon as the legal age is reached (or before, depending on where you come from).


There are several such considerations to be kept in mind while debating whether economic incentives alone drive fertility, and I might've missed something very important. But all I'm trying to say is that if economic incentives alone can explain tiny population changes in Israel, Australia or Singapore, why don't they explain this:

Year Indian Population
1950 357,000,000
1960 443,000,000
1970 553,000,000
1980 684,000,000
1990 838,141,000
2000 1,004,591,054
2005 1,095,054,669
2007 1,129,866,154

I'm counting a lot on this having a lot more to do with low illiteracy rates and the economic incentives behind *those* rather than the more direct explanation offered in the article above.



You are forgetting that birth mortality rates play in a factor as well. If you are not sure if your child will survive to adulthood - you will likely try to have as many as you can to increase the odds that at least one child will survive long enough to support you in your old age.


Cost of having a kids might be a reson but it plays out with many factors especially in INDIA such as superstition beliefs, religion factor, illiteracy, lethargic goveranace in sending the right message to control the population and so many.. More importantly the climate and weather condtion very condicive for living there. Thats the natural gift that these most populous states and recently the fastest growing economices have in common and different from the rest of the world.

Avis II

Does this mean that the cost of having kids in India and China is so low that people here can afford to copulate like rodents?

According to the IMF, India had a per capia income (PPP) of $3802 in 2005, while China's was $7722 in 2006. France's per capita income was $31825, Germany's $31390 and the USA's $43233 (all three stats are as of 2006).

Surely this means that it's effectively less affordable to have kids in the world's two most populous nations?


There is a fundamental flaw. Yes India and China have low incomes but you also have to see other factors such as cultural changes. PPI (purchasing parity index) also playes a role such as in the US a regular meal at KFC costs $8 while in India the same good costs about $2-3. Also, in countries like India and China, there is a cultural difference where the whole extended family (esp in Joint family homes) helps to raise a child where as in the US it is up to the parents to bear the costs and the burden (largely). This research shows that cost incentives show rise in fertility rates. Avis II you are inferring that if there is a high fertility rate then the cost of raising children is low.. and that is absolutly wrong. Its like saying its been proven that your head aches when you hit a wall, but that DOES NOT MEAN that everytime you get a headache that you have hit a wall. Thanks - Guest

Justin James

China has had a law for decades now (occasionally skirted in rural areas to a degree) limiting each family to one child. That makes it a fairly binary choice: have a child, or don't have a child. Unless you can bribe your local officials to let you have more, that's it.

In many developing countries, the cost of childen is a forced neccesity. Without being able to make more than bare subsistence wages (or subsistence farming), saving for retirement is not an option. And the government "safety nets" like Social Security are not there either. Your choice is to have, say, 8 children, so 6 of them survive to adulthood, so having those 6 share the cost and effort of supporting you and acting as your nursing home in your old age is reasonable. In other words, children are the hedge or insurance plan against old age.

You can send all of the "right messages" you want, and give as many education classes as you can, but until people in those parts of the world see that it is possible for them to not need to create their own private Social Security system (after all, it is the same pyramid of finances that Social Security was originally planned around!), they would probably be a lot more willing to not have as many children.




Also, Sweden and France aren't all that far behind us with respect to fertility rates. It wasn't long ago that our rate was 1.9 births per child-bearing-age woman, which is right around where Sweden and France are now. Also, the bigger paradox is that many of the G8 type countries with higher female employment have higher fertility rates. So I'm not really sure it's fair to say cultural differences aren't relavant.


As the article on lagging birthrates you linked to shows, the sharpest birthrate declines have been in Eastern Europe, where social supports to working mothers have vanished, not in Western European countries with strong social supports to working mothers. It's the countries without those supports that have seen the lowest birthrates: Eastern Europe, Italy, Spain, Greece, and Japan. Faced with barriers to combining paid work and parenting, women there aren't dropping out of the workforce. They're having fewer children. But child payments don't ease the barriers to combining work and parenting. So isn't it a no-brainer that a better solution to Europe's workforce shortfall is to help mothers stay in the workforce, providing more workers right off the bat and likely boosting the birthrate too?


This paper covered only Israel.

From the abstract quoted in the blog post: "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..."

So people who want to have kids may hold back from procreation for financial reasons. Once they can afford kids, they no longer hold back. Sounds sensible, and not particularly surprising.

(Caveat--I have not yet had time to read the paper)
The decreases in child allowances at least partially coincided with an increase in terrorist attacks on Israel. Maybe terrorism, or the accompanying economic slowdown, contributed to lower birth rates.


I have a number of thoughts in this.

Firstly, imho poor families do themselves a disservice by having large numbers of children. In a high-popn-growth society there will always be enough middle-aded to look after the elderly. Large families can potentially keep the family in poverty for generations.

Secondly, with global population continuing to increase, some countries are overpopulated, one has to ask how long this can go on. Already there are not enough resources on the planet to sustain the current population at the standard of living of most of the people reading this.

Thirdly, I don't understand why western governments want to increase our population growth. In Australia, for every person who dies, nearly two more are born (not counting immigration). This growth is due to more people of child-bearing age, and we know the baby-boomers are about to start retiring. But we're growin enough as it is (and immigration is high as well). One has to wonder whether the previous conservative government wanted more "Australians" (ie white Australians) to be born to dilute the large numbers of immigrants coming here and having lots of children.

Fourthly, (thanks to Joshua Gans, from whom I discovered this site) the baby bonus here as slightly increase the numbers of kids born (they speak of "fertility" as if less parents were able to have kids before) but the implementation was poor - by introducing the bonus suddenly (baby born 1st July get big bonus, baby born 30th June gets nothing) hundreds of births were artificially delayed, which Gans argued was medically unwise and unnecessary. Despite his suggestions to do otherwise, the govt increased the bonus by $2k at once, possibly causing the same result.



I had an uncle with ten kids. He would say that the first one took up all his time. So how much time could a few more take.


Take a look at Australia where the federal government introduced state subsidised child care, state subsidised health insurance, cash payments to families to assist with the cost of raising children and a "baby bonus" of $3000 for every birth. All of a sudden there is population growth, of course that may not causative as the country has also experienced 13 years of economic growth so good times make people seem more secure and therefore prepared to have children.

Still it seems to suggest that incentives work.

world traveler

The financial incentives in China and India are different since children are still key to old age income where Europe and the US have state and private pensions.

The equation is different in Europe and the US. Assuming the subsidy is monthly and not a lump sum, the incentive would allow some women to stay at home with their children. I don't have data, but my observation is that my friends who are SAHM's have more kids, on average, than the ones employed outside the home. (can't say if the ones who stay home like kids more, or calculate their marginal cost of the next one is lower.)

Even employed mothers would plug the subsidy in to the equation: wages (plus subsidy)-(childcare, takeout, drycleaning, transportation) and could conclude that more kids was a good thing (assuming that the marginal subsidy is greater than the extra childcare or that childcare tax incentives were altered to keep that number positive.) I would guess that the reason the incentive works better in the lower income group is that lost wages are so low that staying home with the kids is the best option financially for those families.

I see a social problem implementing this in the US. You will see resistance to allowing the subsidy for unmarried women who don't work outside the home. Also, childcare is so expensive the subsidy would have to be pretty big to incentivise employed women.



You don't have to go far to see this effect in the US. Our Iowa indian-owned casino pays it's stockholders (native indians living on the "reservation") with a monthly stipend of $3,000 for every man, woman, and child in the family. How do you think this has affected their birth rates?