Competitive Human Markets, Interfamily Transfers, and Below-Replacement Fertility

Abstract

This article seeks possible common causes of low fertility in the area of interfamily transfers. Involuntary transfers of incomes and future opportunities of children occur between families and over age groups through the mechanisms of social security for the elderly public education and seniority of earnings and promotions on the labor market. Such transfers in highly competitive modern scieties may cause additional fertility reduction sufficient to reduce fertility below replacement. The 1st section of this paper presents a microeconomic approach to fertility that combines the Chicago school analysis of the demand for children with the relative income literature. The 2nd section presents cross-sectional and time series evidence from the US and the USSR of the age-specific fertility effects of various interfamily transfers. Interfamily transfers such as social security public education expenditures and earnings seniority on the labor market affect both relative incomes of parents and relative prices of children. They may reduce opportunities of younger families relative to those of middle-aged families. This way the transfers shift the marginal rate of substitution of the quality of children for their quantity toward favoring lower fertility. This means fewer children with higher per child expenditures. Paradoxically the modern system of income relative to social security benefits and public education expenditures is reminiscent of the old European life cycle service system but with the opposite fertility effect. In the old system transfers from the unmarried very young to the newly married couples of about 30 years of age helped to promote moderately high numbers of moderately high quality children. In the present system a new life cycle service pattern seems to have emerged. Transfers from unmarried and married young individuals to middle-aged families may contribute to the production of small numbers of high quality children. The individual and societal effects of this new system seem to be mixed and they deserve a more sophisticated analysis.