The economics behind declining U.S. fertility

Planning to start a family or have additional children has largely become a question of finances and affordability. The recent recession has prompted unemployment rates to spike, and access to loans has nearly evaporated. These factors are discouraging many American women from having children and influencing America’s decline in fertility rates.

More Baby Boomers are retiring, and claims to Social Security and Medicare have surged. Fewer newborns today produce fewer American taxpayers in the coming decades. Declining fertility rates may pose a threat to America’s financial stability. Should American policy makers be concerned with declining fertility rates as they attempt to grapple with the country’s growing debt?

Tom Hirschl, a sociology professor at Cornell University, explained that in America’s early days, children were considered a financial asset. Therefore, the more children a family had, the stronger it would perform financially.

As the country became more industrialized, better education and jobs became more attainable and fertility rates began to drop. “Parents began to realize that having a large number of kids was expensive when families began buying more goods and services in a market,” Hirschl noted.

One measure of fertility is the total fertility rate: “the number of births that a group of 1,000 women would have over their lifetime based on the birth rates by age in a given year,” according to the National Center for Health Statistics.? In 2009, the rate was 2,007.5 births per thousand U.S. women; that is, 2.1 children per woman.? 2.1 children per mother indicates a sufficient “replacement level,” meaning there is a sufficient number of children born to replace both the mother and father.? In theory, a total fertility rate of 2.1 children per woman means the population size will stabilize.? The 0.1 children represent the children who do not survive to reach maturity and procreate.

While historically, America’s fertility rate may have stabilized and even increased the size of the population, current fertility rates risk not providing the sufficient number of tax payers the U.S. federal government will so desperately need in the future. These low fertility rates are a threat to the United States’ ability to finance big-ticket items like Social Security and Medicare in the coming years.

The National Center for Health Statistics published a preliminary report that examined the levels of U.S. births in 2009. The report found that the total fertility rate in 2009 dropped 4 percent from the rate in 2008, which, according to the co-author of the report, NCHS statistician and demographer Brady Hamilton, “is the largest decline in the rate since 1973.”? Hamilton said, “People make quite a bit of this decline below replacement, but as others point out, we continue to have a large number of people moving into the U.S. to offset this comparatively low fertility.”

The United States is the only industrialized nation with a growing population. In fact, Hirschl claimed that French and Spanish cultures are in danger of ebbing due to low fertility rates and replacement levels.

“I don’t think pro-fertility measures are working because people’s behavior isn’t amenable to government policy,” he added.

Millions of people jump through the red tape of America’s immigration policies each year to access high wages, cheap prices or a college education. Ithaca College economics professor Stephen Younger said that a declining fertility rate could also affect immigration policy, explaining, “Policy makers on both sides of the aisle might agree to future liberalization of immigration policies to cope with the coming wave of Social Security and Medicare claims.”

But, he added, many politicians and constituencies resent reforming immigration policy for several reasons. Economically speaking, however, it makes sense to increase the number of people entering our nation’s workforce and paying taxes. After gaining U.S. citizenship, all new immigrant children will be born Americans and therefore become future taxpayers.

This increase in population will increase U.S. tax revenues, freeing up funding for entitlement programs.

In Younger’s opinion, the concern over falling U.S. fertility rates isn’t necessary. A better way to predict possible economic effects of a changing population is to examine the population pyramid, a graph showing age distribution. The graph of the U.S. Census population pyramid for the United States in 2010 (see sidebar) shows a bulge of people ages 47 to 65, the Baby Boomers.

“We have this big bulge of people that are going to retire soon—that is a very, very expensive thing,” Younger said. The costs of Social Security and Medicare, already a huge chunk of America’s spending, are projected to skyrocket as more Boomers retire. “If the number of dependents drops relative to the whole population, you’ll have fewer working families supporting retiring seniors.” Younger added.

The obvious remedy, he added, is to increase the retirement age. “If you work 40 or 45 years out of 70, that’s one thing. But if you work 40 or 45 years out of 90, that’s something completely different in terms of how much money you’ll make in those 40 or 45 years,” Younger said. Social Security was designed when the United States had a much lower life expectancy rate.

Raising the minimum retirement age ensures a larger work force and more tax revenue. While the word “taxation” may be a curse word in some political circles, tax revenue is necessary in reducing America’s looming debt. A raise in retirement age will decrease the ratio of workers to dependents. Furthermore, liberalizing immigration policy will allow for more U.S. births and tax revenues. Reforming Social Security and Medicare—while these are some of the thorniest of issues among Washington politicians—may be essential to balancing fiscal budgets.

Fertility rates are not the be-all, end-all factor in determining Uncle Sam’s ability to pay future entitlements. Tough decisions need to be made, but U.S. lawmakers need to exhibit strong political will to make it easier on future generations to pay off these entitlements and to make good on their promises.

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Samuel Adams is a senior IMC major who proposes Baby Talk as a new national language. Email him at samuelcoyeadams@gmail.com.