The Rich vs Poor Debate: Are Kids Normal or Inferior Goods?

Are you likely to have more kids if you are rich or poor?  Or to put this in econo-jargon: Are kids normal or inferior goods?  (Reminder: When you get rich you buy more of a “normal good,” and less of an “inferior good.” And yes, the language of economics can be a bit cold.)

This is a question that’s central to a debate between Betsey Stevenson and Bryan Caplan. Recall, Bryan is the guy who argues that having kids needn’t be as expensive or time-consuming as we make them. Fair enough. But he then makes the leap to arguing that we should all have more kids. In her response, Betsey noted:

Caplan is entirely focused on the substitution effect: having kids becomes cheaper relative to buying TVs. So he says buy more kids, and fewer TVs. But what about the income effect? As people become richer, they tend to “buy” fewer children, not more. So there’s an offsetting income effect.

In a follow-up, Bryan runs some regressions that he thinks suggest that Betsey is wrong to say that the rich have fewer kids than the poor. It’s a brave person who debates Betsey on the data. And I think he’s tying himself in regression knots, rather than getting at the issue.

Let’s focus on the big picture. Here’s a Gapminder plot showing that those of us born in rich countries have fewer kids than those born in poor countries:

Or we could look at the time series evidence. Gapminder lets me trace fertility and income for each country since 1960.  The plot below shows that as the U.S., China, India and the Asian tigers all got richer, in each case their people stopped having as many kids, too. For evidence on more countries, read this piece in The Economist.

 

To see a much longer time series, turn to Larry Jones and Michele Tertilt and their paper “An Economic History of Fertility in the U.S.: 1826-1960” [ungated version], which shows that as the U.S. got richer over time, fertility fell.  [Legend for graph below: The blue line is “Children ever born”; orange is the “total fertility rate”; and the green line is just the orange line shifted back 27 years to make these different measures of fertility comparable.]

Given the time scale here, it’s not just that the invention of contraceptives changed everything— this is a long-run pattern, perhaps knocked around a bit by war.

Or we could look at the cross-section, comparing rich and poor Americans. The following plot also comes from Jones and Tertilt, who compare children ever born with the average income of the occupation of husbands. (They have to use this indirect measure because the census didn’t collect useful income data until relatively recently). Each downward-sloping line tells the same story for a different cohort: the rich have fewer kids than the poor. And the results show a staggering consistency—this pattern has been true for each cohort for over one-and-a-half centuries.  It’s as true for the pre-Pill cohorts as those with access to modern contraceptives.

In a related paper, Alice Schoonbroodt and Michele Tertilt say that, “There is overwhelming empirical evidence that fertility is negatively related to income in most countries at most times.” They are right. Whether you cut the data across countries, through time, or across people at a point in time, the same fact arises: The richer you get, the fewer kids you have.

Yep, kids aren’t normal.


ddsthegame

I think there's an important factor not being considered here. It's not wealthier people who are having fewer children, it's wealthier WOMEN who are having fewer children. I'm pretty sure none of these stats track how often wealthy men are having illegitimate children (and there have been numerous examples in the news recently of how common this is). That means that wealthier men may be procreating in only slightly fewer numbers than poorer men.

What it also would indicate is that wealthier, more educated women have more control over their reproduction -- and that's true in any country. And generally speaking if women have the choice, they choose fewer children.

Greg

I decided to read the link to Dr. Caplan's article, and I feel like at this point Dr. Wolfer's may be somewhat missing the point in his critique (though as a budding economist myself I know that is what we do). As Dr. Caplan points out, his point is that it is not income, but education level that truly is the determinant. Arguing as such, we would expect the same results to hold true at the macroeconomic level, that is, as long as education levels tend to rise in tandem with wealth levels.

I'm guessing, due to the rapidity of his response, that Dr. Caplan's econometric analysis was likely the Stata (or Gauss or whatnot) equivalent of a back-of-the-envelope calculation. I think to truly tease out whether income or education tends to be the more relevant determinant a more rigorous model would need to be used, as providing macroeconomic data on the same correlated variable still does not tease out the resulting signs on coefficients for each variable.

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Greg

Scratch rapidity argument in my response, I realize there is month gap between Dr Stevenson's original post and Dr. Caplan's response. I'm still curious how he came to his conclusions.

I also ran through a couple quick graphs on Gapminder myself to verify my intuitions, and there does appear to be a strong negative correlation between fertility rates and educational achievement (I looked at total literacy rates, 8th grade math scores and mean schooling for both men and women, and they all hold true relatively the same). Additionally, there tends to be a strong positive correlation between each of these education variables and income per capita (as we would expect to follow). Two areas of interest I think might be to look at the countries that are outliers (for instance high education rates, relatively low GDP/capita, or vise versa), and also to look at the difference between male and female education rates, and see how these correlate with fertility rates in order to tease out whether education or income tend to have more to do with it.

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Greg

Looking closer at a couple outliers I think I tend to agree more with Dr. Wolfers. When we look at countries that seem to "accidentally high" incomes relative to education levels (such as Qatar, Kuwait, Singapore, Maldives) we find that they also tend to have far below average birth rates relative to their education levels. Similarly, when we look at countries with low incomes relative to education level such as Georgia, Uzbekistan and Kygzyg Republic, they have some of the highest birth rates relative to countries with similar education attainments. There is however some variance, Qatar and Kuwait tend to be closer to the average of birth rates for their level of attainment, but Singapore and Maldives are each at the bottom of the birth rate distribution for their respective educational achievement. More proper econometrics needs to be done to tease this out, but I think there might be something to Dr. Wolfer's argument.
Gapminder Links:
Fertility versus Mean Female Schooling Years: www.bit.ly/kJvvFi
GDP/capita versus Mean Female Schooling Years: www.bit.ly/mLapwn

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bob

Its normal holding shadow price constant if you include a model with quantity and quality of children.

Ross

It appears to me that the data shows births. Could the reduction in infant mortality over the past 100 or so years be causing any portion of the effect? Do people have fewer children because a higher percentage survive past infancy?

D.Markakis

Poor people stay home more
Poor people stay close each other to share problems so they tend to get married at younger ages
Electricity intrude households gradualy and poor areas were the last to have
Poor people need workforce to contribute family economy,specialy in agricultural societies
In poor societies, children need care from 0-4 , from 5-10 they take care each other and mother is
working, from 10-.. children work too, from 20 male are getting married from 13+ female are getting married
In poor societies it was common to exchange females for another asset (cow) to alow her to get married. So a child was a potential source of household income
Poor people had no access to any entertainment, sex was/is for them free entertainment
The more back we go in time the more these factors are applicable

Josh W.

Wow, talk about omitted variable bias. I can't believe you didn't attempt to control for any variables that are correlated with both income and fertility.

Juba

What if we made kids MORE expensive, superior goods? Would the relationship invert?

Ruthie O'Donnell

what about the fact that the rich invest a lot of money in their children? they might not have such a high quantity, but they put a lot more resources into them

Derrick

Seriously, even the most stubborn economists do not view THEIR OWN children as a commodity. It's all emotional and the vast majority are definitely not taking economic benefits into consideration while deciding upon having a child.
On one side I see poor people, who can deliver time, attention and love, but can not support their children financially, and on the other side I see rich people who have an abundance of money but little time. I do not dare to judge which is more important, so let's say they are equally important. The reason why rich people tend to have less children is their education. Rich people are on average better educated, and better educated people tend to be more aware of huge responsibilities and consequences of having a child. While less educated people have a "what the heck" and "we'll manage somehow" attitude, rich people weigh the decision more carefully. In other words, rich people are simply more concerned that the little spare time they have will be not enough to raise a child with love and care.

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astonerii

Actually, they are both looking at the incorrect information. What is factually happening is that as the parents need less private labor, they produce fewer children. In the early days, children took effort to raise, but they also produced much for you, particularly as farm hands, maids as well as even nannies for your younger children. As the world progresses, the need for private free labor diminishes, as many things are automated. Get rid of the automation and make everyone billionaires, and you would have 1800s level baby making all over again.

What a crock that professionals who are paid for this sort of thought process can be so completely stuck on stupid as to think that everything in the world revolves around nothing but money.

Michael

I think you also need to look at the number of children who survive to produce their own children. If you are really poor and several of your children die you will more kids to replace them. All of these will be counted when considering fertility, however they should not be.

It is likely that wealthier people have fewer children because less of them die before having children of their own.

Leah

Let's look at countries whose GDP sometimes grows and sometimes drops (Argentina, Armenia, Belarus etc. etc.) we see that birthrate decreases during both grow and drop periods.

Gene Callahan

You know, you might take a step back and ask, "How has our culture become so degraded that we find a bunch of people seriously discussing what sort of "goods" kids are?

Steve

If you've read the Freakonomics books, you know this sort of study is what it is about. By being so "degraded", economists can find meaningful correlations that could actually better society. Then again, who would want to better society if for five minutes we might need to stop calling babies "cute precious little bundles of joy". No, no, nothing in discussion of numbers and correlation/causation, everyone needs to step back and admire a baby pink onesie.

Xiaohan

I think all of the studies mentioned have failed to capture all of the variables in calculating the consumption of children. I would argue that the debate is still up in the air.

Instead of only counting amount of children, a study should be conducted to measure overall investment in children. One could argue that as populations get richer, then invest more into their children (albeit having less of them), allowing them to "consume" more of their children. For example, the U.S. has publicly-funded schooling, parents spend millions of dollars on baby formula, cribs, toys, etc.

In conclusion, a more conclusive study would measure all aspects that a parent can "consume" a child, not just in the amount of children populations have overall.