Natalism Is Expensive

Fifteen years ago, we Americans could brag about our national birth rate. Mark Steyn’s 2006 book America Alone: The End of the World as We Know It, was not exactly sanguine in its overall outlook, but it did relish the fact that America was the “only advanced nation with a sizable population reproducing at replacement rate.” At that point, the U.S. birth rate had been quite steady for a quarter of a century, aside from normal fluctuations with the economy. The rest of the developed world was struggling with demographic decline.

Shortly thereafter, the Great Recession came, followed by an economic recovery. A temporary dip in births was expected. The continuing decline was not. The financial picture brightened, but births continued going down.

As a result, America is no longer alone. It joins the rest of the developed world in asking if the government should do something to address the birth rate—or if the nation should come to terms with a declining native-born population, either by simply managing the consequences of an aging society or by trying to make up the difference through mass immigration.

Some on the “natalist” right want a big effort to promote fertility by subsidizing parents, often pointing to Hungary as a model. So it’s a good time to take stock of the problem—and what it would cost to launch a serious effort to solve it with the brute force of financial incentives and government messaging. This is a crucial question especially for the right, because many conservatives worried about the birth rate are also worried about the size, scope, spending, and debt of the federal government.

Alas, there is no escaping that tradeoff. Appreciably boosting the birth rate through subsidies would cost a ton, going by current research. Perhaps we could get more “bang for the buck” by figuring out a way to target the couples most likely to respond to a financial incentive—but that, of course, would raise serious ethical issues.

The Upside-Down Family Tree

In 2007, there were about 69 births for every 1,000 women age 15 to 44. That number fell to 56 in 2020, a decline of nearly a fifth in just 13 years. A recent paper from Melissa Kearney and two coauthors in the Journal of Economic Perspectives provides the most thorough investigation to date of what happened—and a tour of what little we know about why.

In terms of race and ethnicity, the birth-rate decline was most severe among Hispanics, followed by blacks, with less change among whites. Apparently, the birth rates of Hispanics and blacks are converging toward the historically lower white rate. In terms of age, the teen birth rate continued a decades-long decline that most celebrate, but women in their 20s began having fewer kids as well, and any increases in births among those 30 and up weren’t nearly enough to offset the reductions for younger women. In terms of marriage, two things happened at once: Fewer women married to begin with, remaining in the less fertile unmarried group; and the fertility of unmarried women stopped growing and started declining instead. Lastly, the reduction was concentrated among first births, meaning this was largely about individuals choosing to remain childless, not about parents choosing to have smaller families once they started.

In a more complicated statistical “decomposition,” Kearney et al. find that 37 percent of the total decline was concentrated among teenagers of various races. That’s a good reminder that we wouldn’t want all groups to return to previous levels of fertility. White college grads in their late 20s and early 30s pitched in 18 percent, and whites in their early 20s with high school or some college chipped in another 15 percent. Whites are more prominent in this way of looking at the data both because they’re a majority of the overall population (and thus smaller proportional shifts can have outsized effects), and because births among other demographics of white women were stable or increasing.

A number of theories have been put forth to explain the decline, which Kearney et al. test using state-level data. The logic here is that if a given factor drove the birth-rate drop, then the states with the biggest changes in that factor since 2007 should also have the biggest birth-rate drops in that period. But the results of these analyses are underwhelming.

States with the greatest uptake of the new “long-acting, reversible” contraceptives didn’t have the biggest birth drops. Nor did the states with the biggest increases in child-care costs, or rents, or female-to-male wage ratios, or student-loan debt—or the states with the smallest decreases in the share of people saying religion is important. These are simple analyses, and it’s possible that some of these factors played a role. But certainly, none of these popular talking points show a clear one-to-one relationship with shifts in the birth rate.

Kearney et al. also look at the international picture. Most notably, developed countries with bigger welfare states (including pronatal-style policies such as child allowances) have long had lower birth rates than the U.S.—and the fact that “the US total fertility rate is now closer to other high-income countries, though generally still slightly higher, does not fit with the narrative that if the United States had more supportive government programs—such as subsidized childcare and generous paid work leave—its birth rates would be higher.” (A similar pattern holds within the U.S.: Red states tend to have higher fertility rates.)

Ultimately, the authors throw up their hands, pointing to “shifting priorities” across successive cohorts of Americans. The women who became young adults around 2007 simply want fewer kids for whatever reason—perhaps a desire for greater autonomy and a better career outside the home, coupled with more demanding parenting expectations for those who do have kids. Fleshing out this possibility is a, well, fertile subject for future research, because the existing data are limited and comprise mostly self-report surveys.

Cash for Kids

Since the birth drop has no single, obvious cause, there is no specific aspect of American life we can target to reverse it. Thus the pro-natalists focus more on financial incentives, the all-purpose way of getting people to do what you want them to do. There can be little doubt that at least some people would have more kids if they were paid enough to do so.

There are many ways for policy to compensate parents, or at least make kids more affordable. (The USDA puts the total cost of raising a child above $200,000.) These range from giving new parents extended paid leave from work, to offsetting the costs of specific parenting expenses such as childcare, to paying a one-time “baby bonus” at the birth of a child, to targeting working parents for special tax cuts, to handing out a per-child “allowance” to all parents with minor kids each year.

Luckily, there is an academic literature of “natural experiments” with these kinds of policies—situations where some families were eligible for a subsidy but not others, or a given area abruptly started a new policy while its neighbors did not. These situations give researchers a chance to compare the families that receive new incentives with an appropriate control group—otherwise similar families not eligible for the money. A 2020 study from Statistics Norway ably reviewed these papers.

The good news is that efforts to subsidize fertility seem to work to some degree. Universal transfers to all parents and child-care subsidies seem most effective. But there is a major caveat: These studies tend to pick up a short-term effect—including kids born sooner than they otherwise would have been, in addition to the kids who wouldn’t have been born at all. Estimates of these programs’ effect on completed fertility are less common and tend to be smaller, though this effect is also harder to measure, because it can be difficult to track a set of parents for a very long time.

How much money equals how many babies? That’s even harder to quantify, because the relevant studies cover all sorts of different economic and social contexts that may not translate to 2022 America, as well as policies that deliver subsidies on different schedules. A baby bonus pays out immediately on birth, for instance, but a child allowance pays continuously throughout childhood.

However, in a 2020 article, the economist Lyman Stone converted a number of different estimates to a single metric, finding that “an increase in the present value of child benefits equal to 10% of a household’s income can be expected to produce between 0.5% and 4.1% higher birth rates.” (“Present value” is a way of estimating how valuable future payouts—such as a child allowance collected over the course of many years—are to the typical person today.)

Hungary is strongly advancing the message that fertility is a good thing and spending lots of money to encourage it. The much-heralded result has been a “total fertility rate” of about 1.6 children per woman, not even halfway back to the replacement rate.

Stone, like Statistics Norway, cautioned that the studies he drew these numbers from tend to focus on short-term effects. Yet even if we ignore that caveat, some back-of-the-envelope math is not too encouraging to anyone expecting to get a lot of extra kids for affordable tweaks in policy.

Median household income in the U.S. is in the vicinity of $70,000, 10 percent of which is $7,000. If a subsidy of that size increases births by, say, 2 percent—and for every two new babies we’d also need to pay the subsidy to 100 parents who’d have had their kids anyway—each new birth would cost about $350,000. If we made all women eligible for this subsidy, the total number of births in the country would rise only from about 3.6 million to 3.7 million, a far cry from the 2007 total of 4.3 million.

I’ll avoid extrapolating these numbers any further, but it seems fair to say that closing the gap fully would take an amount much, much higher—and proposals that look anything but fiscally conservative, and more like the ideas of the Biden administration’s “American Families Plan.” While not aiming to boost fertility specifically, the president has advocated making the “child allowance” enacted during COVID permanent—paying parents not one lump sum at each birth, but annual amounts for each child in their care, specifically $3,000 or $3,600 depending on the child’s age. (This would replace the pre-COVID child tax credit, which topped out at $2,000 and was available only to parents who worked.) He’d also heavily subsidize daycare and preschool.

This is the kind of spending that’s measured in ten-year windows and trillions of dollars. It can’t be done without massive borrowing, big tax hikes, or huge cuts to other spending, and we’re not gutting Social Security or Medicare anytime soon. These policies also create tradeoffs along numerous non-fertility dimensions as well; they could reduce poverty and make life easier for working families, but they could also discourage work or warp the incentives surrounding stay-at-home parenting.

The experience of Hungary is also instructive here, as it’s an example hand-selected by pro-natal advocates: Pronatal policy works, but you have to go big. In 2018, Samuel Hammond of the Niskanen Center reported that the country was spending 5 percent of its GDP on family support, including massive housing subsidies for families with three kids. (Before COVID, 5 percent of GDP would have amounted to a quarter of all federal spending in the U.S.) Its more recent efforts include loans of up to $33,000 to married couples that are partly forgiven if they have two kids and fully forgiven if they have three, subsidized fertility treatments, and total exemption from income taxes for women with four kids.

Hungary is strongly advancing the message that fertility is a good thing and spending lots of money to encourage it, to an extent that would probably be hard to match in the U.S. The much-heralded result has been a “total fertility rate” of about 1.6 children per woman in 2021, a number not seen since the 1990s and an increase of more than a fifth since the 2000s, when the rate fluctuated around 1.3. It’s also not even halfway back to the replacement rate of about 2.1, so these policies have a long way to go.

Empty Nurseries, Hard Choices 

Many policies to encourage fertility are universal or nearly so. Have baby, get money. But the example of child-care subsidies, as well as Hungary’s income-tax exemption for women with four kids and subsidies restricted to married couples, show that targeted efforts are possible as well. To maximize bang for the buck, we could try to find the demographics of women most likely to respond to financial incentives.

But, put bluntly, that puts the government in charge of deciding which women should be encouraged to breed more and which should not. Even some commonly supported policies play this role: Child-care subsidies focus on women who want to work and use professional child care rather than become stay-at-home parents, for example, while limiting subsidies to the married would both discourage out-of-wedlock childbearing and eliminate any impact of the subsidies on abortions among unmarried women (two effects that may produce opposite reactions from social conservatives). These kinds of policies are easier to swallow when manipulating fertility is not the explicit goal.

And while flat, universal benefits are about as neutral a pro-natal policy as we can hope to get—communicating the government’s view that every child is equally valuable—even they do not affect everyone’s fertility equally. No one expects a billionaire to care about four- or five-figure sums when making fertility decisions, and some studies have indeed found differential effects by demographic characteristics including marital status and education. It is extremely difficult for the government to get involved in the question of “how many babies” without also wading into the question of who should have more babies, and that is not a question we should want government to answer.

When a nation’s culture does not produce high fertility on its own, policymakers are left in an extremely difficult position. They can accept that their nation is in demographic decline—that there will be fewer of their countrymen in later generations than there are now. They can embark on some amorphous effort to “change the culture” and hope for the best, or boost immigration by truly huge amounts. They can content themselves with tinkering on the margins by, for instance, deregulating to reduce the cost of housing and child care and modestly cutting taxes for parents. Or, if they have the needed political support and are willing to spend lots of money, they can try to bribe their way to a country that reproduces itself again.

It’s not a good place to be. But here we are, alone no longer.