Wednesday, May 16, 2007

Low Fertility Trap Follow-up

In his last post Claus has offered us a nice summary of the latest revision of the low fertility trap hypothesis as advanced by Wolfgang Lutz et al. As summarized below, there are three basic components to this hypothesis:

As Lutz says the key idea is that once fertility falls below a certain level (and even in the event that the hypothesis proved to be well founded this level could only be determined empirically, on the basis of actual experience) a self-reinforcing demographic regime may be established from which it is hard to escape, in the sense of raising fertility back up towards replacement levels. The cut-off point which Lutz et al start from is 1.5 (and in this they take their lead from a proposal by Peter Macdonald in this paper ). This figure does seem to have some coherence in terms of actual experience to date, since with the exception of Denmark - which did briefly fall under 1.5 tfr in the 1990s - no country seems to have gone below it and come back up again.

The explanatory mechanisms we are offered are full of self-reinforcing feedback processes, as can be seen from the diagram below (incidentally for a better look click over the image):

As I said, the whole process is described in terms of three basic components (LFT1,LFT2 and LFT3 respectively). The first of these - the negative momentum component - does not, of course, affect fertility (in terms of the TFRs of those of childbearing age) directly, but it does affect the shape of the population pyramid, and in this way it affects the future shape of the pyramid by influencing reproductive cohort size and also may influence social attitudes to childbearing. There may also be an impact on the third mechanism, the economic one, as I shall try and argue below.

But first an illustration of the negative momentum phenomenon at work. Fortuitously, and as part of the Mothers Day celebrations in Germany, the Federal Statistical Office recently put the following results of a microcensus online:

As reported by the Federal Statistical Office on the occasion of Mothers Day on 13 May, about 1.9 million mothers in Germany aged 15 to 64 years raised young children of under three years in the household in 2005. That are about 154,000 mothers less than in April 1996. This is shown by current results of the microcensus, the largest household survey in Europe. In this context, children include not only natural children but also stepchildren, adopted children and foster children. The microcensus results also show that the number of mothers with young children in the former territory of the Federal Republic (excluding Berlin) was down by 225,000 from 1996 to 1.5 million in 2005, whereas in the new Länder (including Berlin) it rose by 71,000 to about 346,000 in 2005.

The upshot of what they found in the census is that were 150,000 or so less mothers of children under three in 2005 than there were in 1996. That is a cohort width shrinkage of something like 5 - 6% in nine years, which I think is quite a lot. And of course with below replacement fertility on and on it goes. (The reasons for the apparent disparities between East and West would need further examination, although several possible explanations immediately spring to mind, including some rebound from the very dramatic collapse in East German fertility which took place after 1990. There may however also be changing cohort size elements from previous generations at work, as we all know demographic processes tend to cast a long shadow).

Turning now for a moment to the ideational mechanism, and over and above the material which Claus refers to, I recently came across the following interesting box diagram which shows cross generational changes in the proportion of women who regard the answer "none" to the question about the desireable number of children to be appropriate (again, click to enlarge):

Now what is striking here is the situation in the German speaking countries, where the percentage in Austria who are willing to answer "none" is now 12.6%, while in Germany it is 16.6, and in both cases this is a large and significant change over the previous generation. This conforms to the argument Lutz et al themselves put forward when they say:

"The sociological mechanism of the Low Fertility Trap Hypothesis (LFT 2 in Figure 1), is that the assumed is that young people are socialized in a way that they internalize the family size norms which they experience around them in term of actual fertlity. This suggests that ideals will decline about one generation length after the decline in TFRs. This timing fits quite well to the German speaking countries which were the first to enter a steep fertility decline in the 1970s and which in the 2001 Eurobarometer are the first to show significantly lower personal family size ideals for the younger age groups."

The change in attitudes to childlessness reveals yet one more mechanism whereby this decline in average desired family size may be working. What would be interesting would be to know more about why childlessness is becoming more socially acceptable, and why the effect is so strong in German speaking countries.

Moving on the LFT3, the economic component, Lutz et al tend to focus this on a cohort-type effect, based on the changing relative income position of young people vis-a-vis their predecessors 20 odd years ago:

"We study data on earnings by age, gender and education for full time workers over time. As can be seen by Figures 2 and 3, individuals aged 20-34 earn the least. The Figures also show that the young have profited less from the economic growth relative to the other age groups, and that in Canada they actually experienced a decrease in real wages (while other age groups had a rise) since 1981. In the UK women aged 20-34 had a positive, but relatively slow wage growth, where the 35-49 year have a 66% higher wage growth than those aged 20-34. The negative development of income for women in their peak-childbearing years may represent one reason why that fertility timing is postponed and fertility outcome is lowered."

Now this data is interesting, and the situation revealed obviously forms part of the environment in which young people take their childbearing decisions, but perhaps from the point of view of the fertility trap hypothesis something is missing, since these changes do not, in and of themselves, seem to be produced by demographically induced processes and as such they may not be considered self-reinforcing. What might these changes be due to? Well, globalisation processes for one, and technological changes for another. When I say technological I am thinking of the so-called "changing skill bias of work" argument, which would seem to imply that in order to achieve the higher salaries which go with higher value added work young people need to acquire more education and relevant experience. This factor certainly may act as an incentive to delay having children.

However, in line with the exogenous shock idea, the data Lutz et al seem to have studied is cross-country data regardless of Tfr, whilst what would really be needed to validate the economic mechanism Lutz et al advance as part of their trap-feedback hypothesis would be data which correlated earnings for young people (under say 30) with Tfrs, and showed that as the Tfr dropped below 1.5 this income effect became more pronounced (or vice-versa if you prefer).

But in the final analysis the key point about both the globalisation and the technology arguments is that they are better seen as exogenous (ie external to the system) shocks, which have a "level effect" impact in terms of the timing of the first birth decision. For the fertility trap hypothesis to have internal coherence what we need are endogenous processes, ones which are internally driven by the model and repeat and repeat.

Based on the work which Claus and I have been doing on the Life Cycle Model of consumption and savings in the context of rising median ages (see, for example, this post)I think we may well have come up with just some of these.

Essentially the argument, as it is presented here, is that as median ages rise beyond a certain point - 42/43 let's say - the structural characteristics of the economy change. While younger economies - let's say with median ages in the 35 - 39 range - are driven by large scale borrowing (on aggregate), domestic consumption surges, and, of course imports and current account deficits to match the domestic savings weaknesses, the more elderly ones can exhibit higher relative savings levels (Japan, German, Italy, Finland, possibly Switzerland), can no longer rely on domestic consumption to anything like the same extent, and increasingly come to depend on export growth for GDP growth.

Now, of course, this produces a mechanism whereby four things happen:

1) In order to compete for exports these economies have a permanent pressure on their tradeable sectors, whereby outsourcing is continuous and ongoing, wages are continuously compressed, and structural reform is permanent. Since the very export dependence is only further reinforced by the continuing process of change in the population pyramid (ie domestic demand never "recovers" as such) this is all self-reinforcing. That is the more time passes the more there is downward pressure on the wages of young people.

2) Due to the comparatively lacklustre economic growth performance there is a constant shortfall in the tax income necessary to guarantee existing welfare and pension commitments. This shortfall is produced by the low levels of trend growth (think Italy, Germany and Japan) which you can generate exclusively on the basis of export growth. Since the changing pyramid structure (here is another part of the feedback loop) means that an increasing part of the voting population comes to be over 50, the tendency, as we are in fact seeing, is to attempt to maintain welfare commitments by increasing the tax burden, which affects the consumption and earning possibilities of the young directly.

3) Migration factors. The general lack of growth in the economy, and the tendency towards increase retirement ages and higher participation rates at the older ages, all mean that there is a relative lack of well paying jobs at the entry level, a phenomenon which makes outward migration an increasingly attractive proposition for educated young people (again, as we are seeing in Germany and in Italy). This out-migration once more feeds back into the structural evolution of the population pyramid. If the out migration is in part compensated for by in-migration of lower skilled workers, then this tends to retard the process of moving towards higher value work, a feedback which one more time would seem to find reflection in lower wage levels on average in the younger age groups.

4) Impediments on pro-natal policies. The pressure on fiscal resources which result from the previous three factors mean that effectively it becomes increasingly difficult to generate the resources to finance really meaningful pro-natal policies which might attempt to "tease" fertility back up towards a higher level. As time goes by this problem only gets worse.

OK, these are really simply a set of working notes. Comments, as always, welcome.


Scott said...

One possible solution that German leaders might consider for getting women to consider improving their attitudes toward having children would be an informational campaign that demonstrates the consequences to German society of the "no-kid" attitude and appeal to citizens' national pride or patriotism. It would be interesting to see a survey regarding young Germans' attitudes about how important having a stable Germany is to them.

The only fly in the ointment could be that appeals to German ethnic pride could be misinterpreted as creeping Aryanism.

Cyrus said...

The presentation of globalization as a purely depressive factor for fertility is, I think, over-simple. While trade puts a country's low-skill sector in competition with other countries' low-skill sectors, which as explained here is likely to decrease youth wages, in the absence of trade, the country would not be able to export its way to growth, which is likely to decrease everyone's wages, and induce youth emigration.

Edward Hugh said...

"The presentation of globalization as a purely depressive factor for fertility is, I think, over-simple."

Yep, well I agree.

In above replacement fertility societies - and especially the very high fertility societies - globalisation does act as a stimulus to reduce fertility by encouraging the tranfer of behavioural norms, and especially in the areas of gender emancipation and empowerment, but this is basically a good thing i feel.

The trouble is that ideally you want fertility on or around replacement levels, but as we can now see in case after case this tends not to happen, and a large "overshoot" downwards tends to occur.

In the longer term there is no reason at all why globalisation as such should be either more or less favourable to fertility in the developed (and low fertility) societies. But there does seem to be a transition period where globalisation acts as an external shock, depressing wages for many people during the traditional childbearing years of the mid to late twenties (the labour market and structural reforms process), and hence pushing first birth ages steadily upwards as people delay in the hope of more stable and more remunerative work.

This situation is also associated with the arrival on the global scene of some countries with very large populations, and their very rapid economic development (thanks precisely to globalisation), and this is naturally exercising an impact on wages in many of the the more unskilled categories of work.

One strange puzzle is still going round and round in my mind, and that is, just how did these very large countries get to have such huge populations in the first place?

Since the populations of India and China were not that different from European ones at the end of the 18th century, what the hell happened to propel them off on this massive increase?

This is only, of course, a rhetorical question, since I can think of some obvious first base explanations, but I do think it is an interesting question to ask, since, of course, prior to the end of the 18th century global population was pretty stable, increasing only slowly and steadily over time.

The we get the arrival of the "modern growth era", which means in one case rapid economic growth, and in the other rapid population growth. Somehow or other (at least in my mind) these two things are connected, and the challenging thing would be to spell out how.

This is especially the case since doing this would help to situate the unwinding of the population and living standard imbalances which we are now living through as part of one general process with its origins at the time of the industrial revolution, and again if this were the case then recognising this would help us better see how to deal with this unwinding.

Sorry if all this sounds very speculative. Just thinking out loud really, provoked, as it were, by your reference to globalisation, Cyrus.

btw, on the rest of your argument I agree with you completely.

Assistant Village Idiot said...

Optimism seems to matter.

Two points: To the OP - "think Italy, Germany, and Japan..." sorry to be a one-trick pony, but is there any connection between those three nations about the middle of the 20th C, and mightn't that have an important psychological effect on the desire to perpetuate oneself? Humiliation can be a disincentive.

To hugh in the comments: forgive the perhaps naive speculations of an amateur, but I had thought that subsistence-level population rose to meet the amount of resources available. Only when there are social structures in place which allow individual advancement do families begin to limit the number of children. Before that, why bother? Also, Fogel's The Escape From Hunger and Premature Death 1700-2100 suggests that sustained availability of resources is necessary to have the extra calories necessary to perform labor for advancement. Improved agriculture led to an explosion in subsistence-level population, but in countries where accumulation and legacy were possible, families limited the number of children.

I think the idea of an "overshoot" in limitation of family size is correct. People's perception of how many children they can raise to have the same wealth that they have matters as much as the reality.

Edward Hugh said...

Hi again AVI,

"Optimism seems to matter."

Yep, I certainly would agree with this, especially in the case of those countries which may be caught in the 'trap' (if we can establish that one exists that is).

""think Italy, Germany, and Japan..." sorry to be a one-trick pony, but is there any connection between those three nations about the middle of the 20th C,"

Well I'm certainly not completely discounting your argument here, as you suggest it is an interesting coincidence. It's just that I am not sure either how to evaluate it, or how to go about trying to validate it.

The thing is, could it be that one and the same factor which lead towards the kinds of authoritarian regimes that these countries established - and which indirectly lead to the war - could have lead to the sort of social delay which meant that when fertility eventually declined it did so very rapidly (this might be more appropriate in the case of Italy and Japan than in the case of Germany).

More grist to the mill here would be added by the fact that the country which WAS set to overtake the three of them (Spain) in the oldest society on the planet race also had this kind of regime, and for a very long time (Spain is no longer in this situation due to massive inward migration over the last 6 years - thanks to economic distortions produced curiously enough by a massive construction boom fueled by the very low interest rates made available by the ECB as part of the euro-system - and these migration flows have substantially changed the shape of the population pyramid, even while fertility has remained very low: one more example of the law of unintended consequences).

To this you could then add all the Eastern and Central European societies who lived for so many years under communist regimes and now have very low fertility, and median ages which are set to rise very fast.

So I ask myself is DEVELOPMENTAL DELAY the common factor here at the end of the day. Fertility stays too high for far too long, but then unwinds downwards very rapidly indeed. China is, of course, the latest example of this, but others might soon be Brazil and India, in particular since the governments of both these countries seem blissfully unaware of the threat to their long term stability which could well be the result of their falling into the kind of fertility trap which Lutz et al attempt to describe.

"forgive the perhaps naive speculations of an amateur"

Well, don't worry about this, since I was busy speculating myself :).

"but I had thought that subsistence-level population rose to meet the amount of resources available."

Well this was the standard Malthusian-type argument which, with a number of important provisos, was a reasonably rough and ready account of what was happening over several thousand years, until the industrial revolution came along that is. Then resource availability began to outstrip fertility - at least in the part of the world that developed, and the sign of the resource-fertility correlation changed to its opposite: ie as resources went up fertility went down.

"Only when there are social structures in place which allow individual advancement do families begin to limit the number of children."

Well yes, but you need to consider that many societies hitherto considered "primitive" (foragers, hunter gatherers) already had social structures in place (for eg extended lactation) which effectively performed this role. Indeed after the arrival of agriculture fertility generally seems to have risen slightly while the protein input per-capita may well have gone down. This is possibly because male children in an agricultural setting can start work at a much earlier age, and need far less in the way of nutritional resources to perform acceptably well.

"Improved agriculture led to an explosion in subsistence-level population, but in countries where accumulation and legacy were possible, families limited the number of children."

Well - if we are talking about the pre-industrial revolution years - I wouldn't call it an "explosion", there was a steady trickle over 10,000 years, then it all started to change, but the big difference would be that population growth in Europe in the 19th century was to some extent endogenously driven by rising living standards, while the massive rise in - eg - India and China in the 20th century was EXOGENOUSLY driven, ie it was a secondary consequence of events elsewhere, in terms of both technical know-how imported, and health knowledge and products which made the number of surviving children spiral upwards without a consequent adjustment in fertility behaviour.

This adjustment is now taking place - along with, thanks to globalisation, a massive importation of technology and behavioural norms - and the result is, naturally enough, very rapid catch up growth, a process which, due to the very magnitude of these countries, is sending shock waves round the whole system.

The point about both China and India prior to the industrial revolution is that they both had mechanisms in place, of one kind or another (even if these were only the resource constraint ones), to limit population increase, and then suddenly the "seals" were broken.

Anonymous said...

Religiousity seems to play a role. Here's an interesting article on the subject:

In 2004 presidential elections, 29 or the 30 most fertile states voted for Bush, and the 15 lowest fertility states voted Kerry.

Perhaps someone could parse the German data in a similar way.

As to economic explanations, I believe house prices would matter a great deal. We see that in the US, where the costliest areas exhibit the lowest fertility.

Also in the US, higher state taxes generally (but not always) yield lower fertility.

As in Germany and Italy, young people leave low economic opportunity states like those in the Northeast and Upper Midwest for high economic opportunity ones in the South and West.

How to link this all together:

1)Businesses relocate to states with lots of young workers and low taxes (ie, the "religious" states). Think Florida, North Carolina, Texas, Nevada, and Arizona.

2)Young people from "non-religous" states with poor economies then relocate to "religous" states in search of better employment opportunities. Think Michigan, Pennsylvania, and upstate New York.

3) Young people from prosperous "non-religious" states migrate to "religious" states in search of lower real estate costs. Think California, metropolitan New York, Chicago.

This is the exact pattern we have seen in the US. Interestingly enough, the young transplants have shifted fertility South and West, but have also diluted the religiousity of their adopted states. We have seen this in Virginia, Florida, Nevada, Arizona, and elsewhere.

An interesting question: will decreased religiousity in previously religious states push down fertility over time?

Assistant Village Idiot said...

Thank you. Coincidence is certainly not cause, and the low fertility rate and the previous aggressiveness may both result from some third factor. Also, disillusionment can stem from many causes, not simply defeat in war. The eastern European example is quite apt (we are going back to Romania in a few weeks), as most of them have been victim rather than perpetrator nations, which may also depress fertility.

It would be interesting to note what happened in other eras with clear aggressors who were defeated.

As to India and China, I was thinking of the 20th C growth, actually. The importation of technology and improved agricultural methods created first the explosive population growth, and only quite recently a gradual increase in calories beyond subsistence. As you note, cultural adaptations can seldom keep up with exogenous changes. China's one-child policy was a draconian attempt to change culture. I believe they have, with uncertain future consequences.

Cyrus said...

An interesting contrast between the historical demographics of Europe and China (I know little about India, and so can't comment) lies in that Europe, following the Black Death at least, did not again butt up against its Malthusian limits to population. Peroids of population stagnatuion or decline in European history, such as occurred betwen 1300-1450, or bewteen 1600-1700, lasted centuries even when they were punctuated by crises, and recovery gradual. China seems to have been up against some kind of substistence limit for much of its history. Large-scale famine often occurred in the wake of episodes of lawlessness or large natural disasters, and the rebound from these disasters occurred within a generation or two.

Now, recognizing that choosing reasons for such differences is often a matter of choosing what kind of determinism to adhere to, something that might be relevant to contemporary disucssions of globalization is the idea that regions that particularly good at producing cereal grains face, in any age, strong market reasons to specialize in cereal production. In former times, when transport was expensive, this necessarily meant high population densities.

In regions that have less of a comparative advantage in cereals, other forms of land use can coexist with cereal production. And so, for much of the last several centuries, there have been extnesive lands that in Europe that could have been used, perhaps not all that profitably, to produce more grain, and feed more people, but were instead used to grow things like sheep, olives, and oranges. That is to say, on land where cereal production is not an obvious economic choice, cultural values that inhibit rushing towards carrying capacity may find more fertile soil.

Anonymous said...

Globalization is indeed negative for population in wealthy aging countries, because it is so cheap to directly or indirectly import labour from lower-cost countries.

We stop making children for the same reason we stopped making all sorts of other commodities: given housing and educational cost differentials, children are much cheaper to import, than to produce domestically.

This is an obvious consequence of the global commodification of labour under a scheme of neoliberal political economy.

Obviously, it will result in significant long-term change in the ethnic composition of wealthy aging countries, until the liberal economic process has equalized child production costs.