Fertility and Social Security

Abstract

The data show that an increase in government provided old-age pensions is strongly correlated with a reduction in fertility. What type of model is consistent with this finding? We explore this question using two models of fertility: one by Barro and Becker (1989), and one inspired by Caldwell (1978, 1982) and developed by Boldrin and Jones (2002). In Barro and Becker's model parents have children because they perceive their children's lives as a continuation of their own. In Boldrin and Jones' framework parents procreate because children care about their parents' utility, and thus provide them with old-age transfers. The effect of increases in government provided pensions on fertility in the Barro and Becker model is very small, whereas the effect on fertility in the Boldrin and Jones model is sizeable and accounts for between 55 and 65% of the observed Europe-U.S. fertility differences both across countries and across time.

Private Versus Public Old-Age Security

“…In other words, it is our contention that the justification for introducing SS, in a world with robust family compacts, must lie outside of its pension role. 5 Private family compacts and public SS systems, stripped of all adornments, are vehicles of intergenerational transfers, one via the family line and one intermediated by the government. And yet, the entire literature on SS systems and their raison d'être -surveyed, for example, in Mulligan and Sala-i-Martin ( 2004) -focuses on their efficiency and redistributive properties in isolation, but never in a direct, head-on comparison with private family compacts.…”

“…If private agents did internalize the budgetary implications of the public scheme, their fertility decision and the accompanying pension would exactly match what obtains under the compact 4. SeeTanzi and Schuknecht (2000) for data on year-of-introduction for voluntary and compulsory pension insurance in European countries 5. "So, also, security was attained in the earlier days through the interdependence of members of families upon each other and of the families within a small community upon each other.…”

Pensions, fertility, and education

“…While parents would like to compensate their children for the social security transfer, the implicit tax on contributions raises the price of a child, reducing the demand for children (Becker and Barro, 1988). Empirical evidence for the negative impact of social security on fertility is presented in Cigno and Rosati (1996), Cigno et al (2003), and Boldrin et al (2005).…”