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.

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  1. Avis II says:

    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?

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  2. Phishix says:

    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.

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  3. Guest says:

    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

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  4. selvakumar says:

    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.

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  5. Justin James says:

    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.


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  6. Jarrod says:

    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.

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  7. Brad says:

    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?

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  8. chappy says:

    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.

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