ByPaige M. Skiba , Howard J. Wall
Most people probably think they have a good idea what economics is about. After all, economists are on television a lot, usually talking about the stock and bond markets or trying to parse Alan Greenspan's comments for hints about the Fed's next move.
Many may be surprised to find out, though, that most economic research has little or nothing to do with these topics. In fact, the scope of topics that economists explore is constantly expanding and for several decades now has included many social issues, including fertility. To the casual observer, using the tools of economics to understand the decision to bear children may sound silly, if not immoral. Indeed, some of the phrases economists use—such as the "quality of children" or "the consumption of child services"—can sound downright unnerving.
So what can the dismal science tell us about the decision to bear children and the factors affecting that decision? To answer those questions, this article presents a simple economic model that reveals how the fertility decision is similar in many ways to other decisions more commonly associated with economic analysis. The article then demonstrates how this model can be used as a framework to analyze a variety of public policies.
On the demand side, the economic analysis of fertility differs little from the analysis of the market for any consumption good. For example, the demand for children has something to do with prices—if children become more costly to have and raise (that is, if the price of children goes up), fewer will be demanded.
It is not difficult to see how increases in the direct costs of things, like clothing or education, might lead people to have fewer children. But these direct costs are not the only ones that matter. Raising children also requires a great deal of parents' time, which carries with it an opportunity cost. This opportunity cost is the amount of money that a parent gives up to spend time providing child care. For example, if a parent earns $20 an hour and works five fewer hours per week because of a child, the parent is giving up $100 per week of income. This amount is the opportunity cost of the child.
Although a higher wage means a higher opportunity cost for parents, it usually also means higher income. And, as with the consumption of any good, changes in income can affect the demand for children. To isolate the effect of income on the demand for children, imagine that 100 households win the lottery and split the proceeds so that each receives an additional $10,000 per year. In this scenario, the opportunity cost of children has not changed—the amount of money a parent would give up to stay home with the child has not changed— so the $10,000 represents a pure income effect. If, as is generally thought, children are normal goods, this income effect should result in more children being demanded by these households.
This appears to fly in the face of reality, however, because households with higher incomes actually tend to have fewer children. To reconcile this discrepancy, economists have modified the analysis slightly and, instead, think about the consumption of "child services," a combination of the number of children and average "child quality." Parents can increase child quality by spending more raising a child. So, when a household's income rises, the consumption of child services can rise through increases in the quantity and/or the quality of children.
If a parent's wage rises, two opposing effects on the demand for child services occur. On the one hand, higher wages mean a higher opportunity cost and, thus, a lower demand. On the other hand, higher wages also lead to higher household incomes and, thus, to a higher demand. Exactly how these opposing factors are balanced, and how the questions of quantity and quality are dealt with, depends on parents' personal preferences, which economic analysis cannot incorporate easily.1
Of course, the demand for children tells only part of the story, as the supply also plays a role. The supply of children centers on the ability of people to control the number of children they have. To a great extent, this depends on natural fertility—the number of children that would be born if no steps were taken to prevent pregnancies or births—and on the costs and effectiveness of steps that people can take to prevent children, such as birth control or abortion.
As contraception or abortion becomes more-readily available, couples should be better able to control fertility, which should reduce the supply of children.2 Changes in the prices of these fertility controls also matter. If, for example, the cost of birth control pills falls, the cost of preventing children decreases, which could lead to a further reduction in the supply of children.
So what good is all of this sometimes-uncomfortable discussion about the quantity and quality of children? For one thing, it provides a simple framework for evaluating the effects of a variety of policies.
The dependent tax deduction, which is a per-person income tax deduction, decreases the net costs of child services and should, therefore, increase the demand for them. Because this tax break is based on the number of dependents, it should have a relatively larger effect on the quantity of children, although the quality of children should also rise. Indeed, some studies have shown that relatively small increases in the value of this deduction can lead to significant increases in fertility.3 Other types of income-tax breaks—those related to expenditures on children, such as the deduction for child-care expenses—should affect child quality relatively more than the number of children.
The economic model of fertility suggests that welfare policies can also affect childbearing decisions. As with any other form of income, higher welfare payments should increase the demand for children. In addition, if welfare payments are tied to the number of children, the model predicts that these payments should affect the quantity of children relatively more than the quality. In a recent study, economists Jeff Grogger and Stephen Bronars found that higher base levels of welfare have indeed led to small increases in fertility among unwed mothers. However, the authors find no evidence that the extra payment mothers receive for an additional child affects fertility.4
Recent and extremely controversial research takes the application of the economics of fertility even further by linking the legalization of abortion in the early 1970s to the recent drop in crime rates.5 In the economic model of fertility, the availability of abortion decreases the potential number of children supplied. If people choose to prevent the births of children they did not plan for (the quantity effect), they will have more resources available to raise the children they do have. Because these children receive more resources, they should be less likely to commit crimes when they get older (the quality effect).
Combining the quantity and quality effects, law professor John Donohue and economics professor Steven Levitt argue that up to half of the recent reduction in violent crimes has been due to the legalization of abortion. Although they caution that their results should not be misinterpreted as "an endorsement of abortion or a call for intervention … in the fertility decisions of women," their research has caused uproar from all sides. Lost in the uproar, though, is Donohue and Levitt's finding that the main source of the drop in crime has been through the reduced likelihood of a child becoming a criminal—the quality effect. This finding means that policies that improve the economic and social circumstances of children could have had the same or greater effects on crime than what Donohue and Levitt attribute to abortion.6
How does all of this talk about the quality and quantity of children help us? For one thing, it helps economists make sense of the fertility choices parents make, even though we know they don't necessarily use a calculator to balance the costs and benefits of having children. For another, the discussion—although sometimes controversial and uncomfortable—provides a useful framework for looking at a large number of important policies.
Barro, Robert J. "Does Abortion Lower the Crime Rate?" Business Week (September 27, 1999), p. 30.
Becker, Gary S. A Treatise on the Family (Enlarged Edition). (Cambridge: Harvard University Press, 1993).
Becker, Gary S. and Kevin M. Murphy. Social Economics: Market Behavior in a Social Environment. (Cambridge: Harvard University Press, 2001).
Donohue, John J. and Steven D. Levitt. "The Impact of Legalized Abortion on Crime," Quarterly Journal of Economics (May 2001), pp. 379-420.
Georgellis, Yannis and Howard J. Wall. "The Fertility Effect of Dependent Tax Exemptions: Estimates for the United States," Applied Economics (October 1992), pp. 1139-45.
Grogger, Jeff and Stephen G. Bronars. "The Effect of Welfare Payments on the Marriage and Fertility Behavior of Unwed Mothers: Results from a Twins Experiment," Journal of Political Economy (June 2001), pp. 529-45.
Lott, John R. and John E. Whitley. "Abortion and Crime: Unwanted Children and Out-of-Wedlock Births," Yale Law School Program for Studies in Law, Economics, and Public Policy, Working Paper # 254, 2001.
Whittington, Leslie A., James Alm and H. Elizabeth Peters. "Fertility and the Personal Exemption: Implicit Pronatalist Policy in the United States," American Economic Review (June 1990), pp. 545-56.