Tuesday, November 28, 2006

Sweden, Pro-Natalism, Baby Booms and Demographic Transitions

by Edward Hugh

A commentor on my Bonobo Land blog has been poking around the fertility issue and coming up with some interesting points. Now I'm sure Mark Ammerman is far from being in 100% agreement with what I am saying in general about fertility, but he is making what seems to me to be a genuine attempt to sort out for himself what it is that actually lies behind the phenomenon of low fertility.

Now if we start with a point made in a link Stefan Geens put up (as also mentioned by Claus yesterday):

The current baby boom-bust cycle implies severe welfare losses for the baby boom generations, even under optimal policy.

Now this is one interpretation of what is happening, we have a baby boom-bust process. But as Ben Bernanke indicated in a recent speech (as linked to here, and as elaborated on even further by Claus):

This coming demographic transition is the result both of the reduction in fertility that followed the post-World War II baby boom and of ongoing increases in life expectancy. Although demographers expect U.S. fertility rates to remain close to current levels for the foreseeable future, life expectancy is projected to continue rising. As a consequence, the anticipated increase in the share of the population aged sixty-five or older is not simply the result of the retirement of the baby boomers; the "pig in a python" image often used to describe the effects of that generation on U.S. demographics is misleading. Instead, over the next few decades the U.S. population is expected to become progressively older and remain so, even as the baby-boom generation passes from the scene.

So what we have is not a boom-bust but a continuous and ongoing transition wherein below fertility replacement and increasing life expectancy combine to steadily push up population median ages (of course the US currently has more or less replacement level fertility, but this is just one of the issues which worries Mark - who is a US citizen - how sustainable is this given the fact that the relatively high Latino fertility may well fall at some point?).

So Mark has found himself getting into a number of issues which are of interest to us here at Demography Matters, and this will be the first of two posts which discuss these issues.

Mark has been scratching around and has come up with the point that in fact fertility in Sweden (as in France) first went below replacement level in the 1930s, but that the extent of the problem which was about to arrive was in fact *masked* by the existence of the baby boom in the post war world and not created by it.

From here on in, until I indicate, it is mark who is talking:

"Sweden seems a good empical test of what laws favoring mothers can do. quoting the author, Allan Carlson:

"The Myrdals fleshed out this program in their best selling 1934 book, Crisis in the Population Question, a brilliantly argued volume which substantially transformed Sweden. While Swedish conservatives continued to fret over sexual immorality, the Myrdals pointed directly at the contradictions created by an incomplete welfare state. Prior government actions such as mandatory school attendance, the ban on child labor, and state old age pensions, they admitted, had stripped away the value of children to parents. But the costs of children remained at home. In consequence, children had now become the chief cause of poverty. Given the incentives set up by the state, the very persons who contributed the most to the nation's survival by having children were dragged down into poverty, shoddy housing, poor nutrition, and limited recreational opportunities. A voluntary choice between poverty with children or a higher living standard without them was what young couples now faced. Young adults were forced to support the retired and the needy through the state's welfare system, and also the children to which they gave life. Under this multiple burden, they had chosen to reduce their number of children as the only factor over which they had control."

"If we are to believe Carlson's account, and I see no reason not to, the real motivation for Sweden's "universal state allowances for children's clothing, a universal health insurance plan, a universal entitlement to day care, state-operated summer camps for children, free school breakfasts and lunches, state-funded family housing, birth bonuses to cover the indirect costs of having babies, marriage loans, the expansion of state maternity and midwife services," etc., was to encourage people to have babies."

"So already in the 30s Sweden had this problem and were struggling with it mightily. I'm sure this the only example we have of seventy years of trying to deal with the problem. Despite all the effort Sweden has never since then risen over or even near replacement fertility."

"Although Sweden today has a higher fertility than most of europe, they also have a significant immigrant population. Without knowing the fertility rate of ethnic swedes we can't put a number on how effective the fertility promotion effort has been. Since the swedish government refuses to collect that information it hints that the situation is probably not good."

OK, now its me again (Edward).

Now I think Mark is absolutely spot on here. This is a problem which was identified 70 odd years ago, and which social policy (in the pro-natalist sense) has failed to resolve. So this is something we need to come to terms with.

It is also worth noting that Nobel Economist Gunnar Myrdal was the first to really start to investigate the *economic consequences* of declining and ageing populations (in the so called Godkin Lectures, the most economically relevant of which I have online here) and people in Japan would do well to go and read this if they want to understand why consumption is currently so weak there. Myrdal got though to this at the end of the 1930s, but as I said, the baby boom sent everyone astray and economic theory effectively lost 70 years when the issue could have been conceptualized and policies developed to enable the transition to be lived with less rather than greater difficulty.

Well I would like to thank Mark for being stubborn and digging around (even while not agreeing with me) and coming up with this most interesting of arguments. Of course, what we can now do is either follow the example of Marcel Proust, and go off in search of lost time, or we can make the best of what we have, and get down to the still outstanding task of coming to terms with the issue. This is what I suggest we do.

Meantime more arguments from Mark tomorrow.


Admin said...

Hi Stefan,

"Despite all the effort Sweden has never since then risen over or even near replacement fertility."

"Not quite true."

This is all a pretty complex technical question about tempo and quantum effects etc, and the uptick in children you draw attention to in Sweden in the early 2,000s may well be the result of a slowing down in the postponement effect, which logically then brings a greater number of children onstream than previously.

However interpreting all this partly brings us face to face with the issue of the exact validity of trfs as a measure of fertility. Clearly the completed cohort tfrs are the most reliable indicator, and these won't be in for the 1965 cohort (for eg) for some years yet. However the currently estimated tfr for Sweden is around the 1.7 mark, and this is not going to be that far from the final figure, so at the end of the day, and despite the slight upswing in the arrival of births, what Mark says holds:

"Despite all the effort Sweden has never since then risen over or even near replacement fertility."

And in all the tossing and turning over statistical interpretation we should never lose sight of the force of his main point, which is that over 70 years the society which has done most (virtually left no stone unturned) in terms of pro-natalist policies still hasn't managed to get replacement fertility. That is telling indeed, and suggests the importance of getting a fuller understanding of the whoole fertility/longevity issue, which is I suppose rather the raison d'etre of this blog.

Poke around a bit more and you'll find plenty of interesting stuff on-site here. The various bit and bobs contained in the WHO low fertility in Europe collection just down the page a bit form a pretty good starting point.

Anonymous said...

A few rambling thoughts here...

Some forms of the lifetime savings hypothesis predict that young people, rationally expecting rising earnings for a few decades to come, will engage in substantial dis-saving. This is true insofar as it goes, with mortgages, student loans, etc., but in fact some lifetime savings models predict that if young people desire to go into even greater debt than their creditors will allow them to. Neither the young people nor their creditors have sufficent knowledge of their future income profile to underwrite the financial liabilities they might like to undertake, if they had better knowledge of their future earnings.

Swedish-style pronatalist policies try to get around this by transferring funds to young families from society as a whole, hoping that in the aggregate the beneficiaries of these policies will pay back the investment.

And yet, these policies have not resulted in replacement fertility. One possibility is that people do not desire replacement fertility, and would not have 2.1 children per woman even if means were no issue. Insofar as that is true, policy is useless. However, surveys about desired family size say that this is not true, and I know of no way to determine what people do not know that they do not want.

Another possibility is that these possibilities do not work in aggregate: the assumption that transferring funds from wage-earners, in general, to child welfare, in general, has the desired effect on what are ultimately millions of micro-decisions made by individual households may not be warranted. I might at this point begin from premises like, up to a point, there are economies of scale in child-rearing, (But what is that point? Perhaps the diseconomies set in when you have more children than your peers, who are now less willing to let you partake of quasi-communal resources?), or the observation that traditional European demographics, during those periods when they did produce stable or growing populations, involved both many large families and many childless people, and that policies aimed at an aggregate result implicitly (or at least without some serious finesse) aim at encouraging every woman to have exactly two children, a goal hampered by being an unnatural result.

Now going back to two forms of often-large loans that young people are willing to undertake, and creditors are willing to grant, mortgages and student loans, I see some trends here. One is that in the jurisdictions I am familiar with, these loans are difficult or impossible to escape through bankruptcy. The mortgage has the added bonus of the property itself being collateral, and the student loan the bonus of being often subsidized by the government. In either case, the risk to the creditor is reduced.

I might then suggest that if the state is to subsidize child-rearing, the subsidized loan is a better instrument than the direct subsidy, being more sensitive to the household-level decisions it is meant to influence.

As an analogy from the mortgage, however, today's society cannot stomach the notion of indenturing one's children as collateral against the risk of their failing to live up to the investment placed in them, and I cannot at present think of any form of such "social collateral" that would be acceptable. Any insights that would break this dilemma might be valuable.

Assistant Village Idiot said...

Just adding in some confusing information here, trying to grasp the whole picture.

What caused the decline in fertility in the first place? I think the two factors mentioned - the pension costs of elders plus the rearing costs of children must indeed have been quite a squeeze. In the century before the 1930's, 20% of Sweden's population left for America, and American Swedes continued to have many children. But back in the home country, this was not so. Population had doubled between 1750-1850, and inheritance was dividing farms into parcels so small that they could not sustain large families. Not that you could farm Swedish land that well to begin with. Even with industrialization and emigration, near-famines occurred even into the early 1900's.

Memories of privation die hard, and children born in 1900 would have known serious want and death of siblings when they were young. Mandatory schooling, while certainly an expense paid by society and a great gift, removed labor from marginally surviving families. Couples having children from 1925-1940 would have considerable reasons of memory, plus some present incentives, to keep the number of children low. There were still many impovershed in Sweden until after WWII, when their intact infrastructure gave them comparative advantage in war-destroyed Europe.

I don't have a grand conclusion that ties this in to modern demographic collapse. But as other European nations have similar histories before their birth rates went south, perhaps some of the answers lie farther back in the past.

Anonymous said...


You misunderstood the point I was making. I elaborate further in a comment to Edward's next post.

jwenck said...

"the extent of the problem which was about to arrive was in fact *masked* by the existence of the baby boom in the post war world"

An example of Edward´s most massive misunderstanding. There is no masking involved. It´s just that Edward "masks" the image of the reality he wants to talk about. Thus developments that are considered negative by him are etched in relief, while the baby boom - qua being considered the desired state of affairs in demographics - doesn´t need any causal explanation and recedes into the flat, noisy background space.
Well, if you don´t think it necessary to explain why your preferred perceptions are more widely shared by others at some times than they are at other times, then you are indeed likely to fall prey to a tendency of mystifying your subject. Such bewilderment is clearly evident in all the talk about a "fertility trap" (as it is in what we might call "liquidity trap economics" - the latter being the subset of beliefs common to the dominant schools of mainstream economics).
Interestingly, Edward tries to be both orthodox and heterodox about one and the same issue at one and the same time by simply using the idea of the fertility trap as a stand-in for that other trap that´s plaguing economists´ imaginations.
Apparently he doesn´t realize that the rate of change in economic aggregates is far higher than that in demographic data. Thus the latter cannot explain the former.

I´d suggest that a satisfactory theory explaining the baby boom would automatically yield a causal hypothesis about the baby bust. Such a theory could be built using the available evidence that historians and anthropologists have collected in their study of various historical epochs and different civilizations.
Basing the exploration of demographic phenomena on an attempt to fill a hole in business cycle theory is likely to fall far short of the mark.

Admin said...

Hi Joerg,

"Basing the exploration of demographic phenomena on an attempt to fill a hole in business cycle theory is likely to fall far short of the mark."

I'm not sure we aren't talking at cross purposes here. Business cycle theory does have its own problems, but I think it is not the relevant economic argument for addressing the secular decline in fertility which we have seen in most developed economies (yes, the US is one more time different) since the initial increase in fertility which followed the industrial revolution.

I think the relevant part of economic theory for our current concerns is investment theory (and I suppose Becker has some part of the idea with his quality/quantity approach, though he didn't seem to see that there was also a reproduce now/reproduce later trade-off, which is what we call birth postponement).

Basically as people get to live longer (following the first epidemiological revolution, the non-medically driven one), it makes more sense to invest more resources in each child. So people trade quality for quantity in children.

This is where I think economic theory can help us. It doesn't, as most commentators indicate, provide a complete picture, since values also come in.

So the baby boom was against the secular trend in some ways, and it is this boom that needs explaining for those who are interested in it. Obviously a whole slew of countries which were outside this 'boom' phenomenon are now steadily approaching lowest-low fertility, and this is the secular trend which interests me.

The idea of a fertility trap is a hypothesis, which has been advanced by Wolfgang Lutz, but it is still a hypothesis, and it will be interesting to see in the coming years which way the data moves (ie will any of those societies which are currently in the 1.3 range and below start a secular trend back up to 1.8/1.9?). I think this dispute is hard to resolve at the moment, and the prudent person would keep an open mind.

On business cycle theory I would say that the conventional neo-classical account is being bust wide open by what is happening to domestic demand in Germany, Japan and Italy right now. But I think that is another debate for another time.