To bear, or not to bear: That is the economic question

Federal Reserve Bank of St. Louis - Regional Economist, Jul 2001 by Skiba, Paige M, Wall, Howard J

That Is the Economics Question

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 assodated with economic analysis. The article then demonstrates how this model can be used as a framework to analyze a variety of public policies.

Fertility 101

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

The Economics of the Stork

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.

Policy Applications

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.