Governments in many high-income countries are struggling with rapid population aging driven by ultra-low fertility rates. In Germany, Italy, Spain and Japan, fertility rates for more than two decades were below 1.5 children per woman, implying that each new generation is less than three-quarters as large as the previous generation. In East Asian countries such as South Korea, fertility rates are below one child per woman. Even in the U.S., which has maintained fertility rates above the high-income national average for some time, fertility rates have recently dropped to about 1.6.
How can we make sense of why fertility rates have dropped, and how can we determine which measures, if any, may contribute to higher fertility rates in the future?
With Becker (1960), economic models of fertility behavior relied on two main ideas to account for empirical regularities of fertility choice. The first of these is the quantity-quality exchange: the idea that as people get richer, they invest more in their children’s ‘quality’, especially by providing them with more education. Because education is expensive, parents choose to have fewer children as income increases. The second main idea centered on women’s opportunity cost of time. According to this mechanism, children are ‘more expensive’ when women’s wages are high and many women work, because raising children and working are competitive practices of women’s time. By relying on these mechanisms, first-generation models of fertility behavior could take into account the empirical regularities that applied to a wide range of countries until a few decades ago, especially the observation that fertility rates were lower in countries that are richer and where many women work.
New fertility facts
The forces emphasized by first-generation models remain relevant in many places, especially in countries that are still in the midst of their demographic transition. However, as we argue in a recent literature review on the economics of fertility (Doepke et al. 2022), the classic ideas of first-generation models of fertility are of little help in understanding ultra-low fertility rates in high-income countries. today because the basic observations that motivated first-generation models no longer hold up in recent data. As a result, the economy of fertility has entered a new era, in which a new set of forces drives much of the perceived variation in fertility.
Figure 1 Total fertility rate and GDP per capita across OECD countries
Figures 1 and 2 show how fertility has changed in high-income countries. In 1980, fertility continued to decline in GDP per capita across OECD economies; by 2000 it was the richer countries that had more children. Similarly, Figure 2 shows that in 1980 in the OECD, the countries with the highest female labor force participation had the lowest fertility rates. By the year 2000, this relationship had reversed – fertility is now highest in countries where many women work.
Figure 2 Total fertility rates and women’s labor force participation across OECD countries
The compatibility of family and career as a determinant of fertility
The changing empirical regularities of fertility were first noted in the sociology literature (e.g. Rindfuss and Brewster 1996) and discussed in economics, beginning with the contributions of Ahn and Mira (2002), Del Boca (2002), Apps and Rees ( 2004), and Feyrer et al. (2008). To take into account the new facts of fertility choice in today’s high-income countries, researchers had to consider new mechanisms that go beyond the forces emphasized by first-generation studies. Recent research in economics, demography and sociology that addresses this challenge has a common theme: the compatibility of women’s career and family plans emerges as a key determinant of fertility behavior.
The underlying change that connects career-family compatibility and fertility decisions is a shift in women’s overall aspirations and life plans. As highlighted in recent work by Claudia Goldin (2020, 2021), most women in the past viewed a career and a family as mutually exclusive choices – achieving one of these goals implied a sacrifice in the other to make. Today, most women in high-income countries strive to have both a family and a fulfilling career that spans most of their adult life. This aspiration reflects what has long been the reality for most men in high-income countries; therefore, the shift in women’s aspirations reflects a convergence in women’s and men’s overall life plans.
According to the new fertility literature, the desire to have both a career and a family matters for fertility outcomes, because there is considerable variation between countries in how compatible these two goals actually are. In countries where it is easy to combine career and family, women have both; in countries where the two are in conflict, women are forced to compromise, which results in both fewer children being born and fewer women working.
What factors drive career family compatibility?
In our survey, we highlight four factors that facilitate the combination of a career with a family: family policies, cooperating fathers, favorable social norms, and flexible labor markets.
The biggest challenge in combining a career and family is dealing with childcare needs. If women eventually have to provide most of the childcare on their own, it will be difficult or impossible to continue in a demanding career while having young children. A common alternative way of caring for children is provided by day care centers and preschools, which can be public or private. If such childcare is widely available, covers the entire workday and is affordable, women with young children have an easier time continuing to work and are likely to have larger families as a result (Del Boca 2002, Apps and Rees 2004).
Figure 3 Fertility and the female employment-to-population ratio through public early childhood education spending
Consistent with this intuition, Figure 3 (based on Olivetti and Petrongolo 2017) shows that public spending on early childhood education is closely related to both fertility rates and women’s employment across countries. The countries with the lowest total fertility rates (below 1.5) are all in the lower half of early childhood education spending. Other policies that help determine career family compatibility include parental leave policies, tax policies and the length of the school day.
Childcare can also be provided by fathers. Time use data show that until a few decades ago, mothers spent far more time on childcare than fathers did, but in many countries, fathers’ contributions have increased since then. The division of child care between parents has a direct impact on fertility decisions if parents negotiate whether they want additional children. Doepke and Kindermann (2019) show that in recent data, couples are likely to have another child only if both partners share the desire to have one. If men contribute little to raising children, women will be less likely to agree to another child, and fertility will be low.
Figure 4 Men’s share in homework and fertility across countries
Consistent with this view, Figure 4 shows a strong cross-country correlation between men’s contributions to childcare and homework and the overall fertility rate. In all countries with a fertility rate below 1.5 (blue dots), men do less than a third of the work in the home.
The role of intra-household bargaining for fertility implies that deeper determinants of the division of labor in the household matter for fertility rates. These factors include family policies such as paternity leave (Farré and Gonzalez 2019), social norms regarding mothers’ role in the home and workplace (Myong et al. 2020), and workplace practices such as an expectation of long hours in career positions and attendance (or absence) of flexibility to deal with sudden childcare needs, for example when a child becomes ill.
Finally, the compatibility of career and family also depends on labor market conditions (Del Boca 2002, Adserà 2004, Da Rocha and Fuster 2006). If stable, well-paid jobs are hard to find and unemployment rates are high, parents may worry that a temporary career break after the birth of a child could turn into a permanent one. Having another child is less worrying when desirable and flexible works are easy to find.
For policymakers concerned about ultra-low fertility, the new economy of fertility does not offer easy, immediate solutions. Factors such as social norms and overall labor market conditions change only slowly over time, and even potentially productive policy interventions are likely to have effects that only gradually build up over time. Yet the clear nationwide association of fertility figures with measures of family-career compatibility shows that ultra-low fertility is not an inevitable fate, but a reflection of the policies, institutions and norms that prevail in a society. New generation research into how these characteristics determine fertility rates can help pave the way for a future that avoids the current trajectory of ever-smaller families and gradually declining populations.
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