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Low Birth Rate Has Economic Consequences, Professor Gary Becker Warns

Changing fertility rates will have a significant effect on the economic future of several countries, according to Gary Becker, Nobel laureate and University Professor of Economics and of Sociology.

Becker, a pioneer in economic research on the family, spoke at the inaugural conference hosted by the Milton Friedman Institute for Research in Economics at the University of Chicago’s Hyde Park campus on February 28. The two-day event focused on “New Economics of the Family.”

Becker said, “The thing I found—and the literature continues to find—is that the main challenge to understanding the family is the high degree of interdependency of its parts,” he said. “This makes empirical work very hard. The cleverness of many of the papers today was that they used reasonable ways to isolate various components of the problem.”

Although Becker praised the research presented, he offered a suggestion for a new direction: research on fertility. In particular, no speakers tackled the revolution in below replacement fertility, or the dramatic increase since 1970 in the number of women in the world with fertility rates of less than 2.1 children, he said.

The number of people living in countries with below replacement fertility went from 8 percent in 1970 to almost half of the world’s population today, Becker said. China accounts for 40 percent of today’s BRF numbers, but 40 countries in Europe are also represented, as well as many other countries in Asia, he said.

“Once a country gets into the ‘low replacement fertility club,’ it doesn’t leave – with very few exceptions,” Becker said. “This seems to be a very important trend. The questions worth addressing about this are what are the consequences of this for the family, what are the consequences of this for the economy, and what are the consequences of the economy for fertility?”

With above replacement fertility for 150 years, many programs were instituted that worked well in growing populations, including pay-as-you-go Social Security and Medicare, he said. “Basically both of these systems tax the young to pay for the old,” Becker said. “But it’s getting harder and harder to do that. For example, Japan is facing a real problem. The population is getting older and there are fewer young people. Germany, Russia, and a number of other countries are facing this problem, as well.”

Immigration relieves some of the problem, leading many countries, especially in Western Europe, to reconsider limits on immigration, he said. Other effects of this shift include an increase in the earnings of younger workers, increase in investments in higher education, an increase in the bargaining power of women for marriage, and a decline in returns on research and development and other economy-of-scale activities, Becker said.

Meanwhile, future research should consider whether forces will eventually restore fertility rates, he said. “It’s not obvious what those forces are,” he said. “I’ve thought a while about this. You can create models where the fertility rates are brought up, but I don’t know how attractive they are. Rising wages, technological improvements, income and substitution effects, divorce rates, labor force participation of women, and other variables may influence the level of fertility. I’m not sure of the answer, but an extremely important question is, can we remain below replacement fertility or will forces bring us back to replacement or above?”

— Phil Rockrohr