Inverted Easterlin Fertility Cycles and Kornai's "Soft" Budget Constraint

Abstract

Modification of Easterlins explanations for fertility fluctuations and cyclic feedback from cohort sizes and income fluctuations to include Janos Kornais notions of no budget constraint by state-owned farms were discussed and used as a theoretical framework for analyzing the total fertility rate between 1956 and 1989 in Eastern European countries. This Kornai-Easterlin effect reflected that in state socialist economies there was a dependence on a growing labor force for economic expansion. Cohort size and fertility consequences in a socialist context were viewed as a macroeconomic effect experienced by the entire population. What is important is the variations in number of new entrants into the labor force to be absorbed by the economy and the detachment of labor supply and demand from wages. Theoretical applications were made to Hungary the Czech Republic Romania Bulgaria Poland and Slovakia. These countries illustrated the reverse fertility consequences of economic trends suggested by Easterlin: 1) large cohorts stimulated the economy and small ones produced temporary stagnation because of labor shortages and 2) large cohorts produced higher fertility and small ones lower fertility. The demographic profiles of each country were different at the onset of state socialism; the fertility profiles followed the expected path from changes in the net size of cohorts entering the labor force. Episodic population policies and other historical events were also reflected in deviations from the expected trends. For example in Poland and Slovakia there was an important impact from the labor-absorbing capacity of the economy and the responsiveness of the people to changing economic circumstances. Graphs depict the time trends in total fertility versus the labor force change for each country. In Hungary there was a clear correspondence between the rising and falling trends in fertility and labor force participation between 1946 and 1989. The spike in 1953-54 coincided with pronatal policy measures introduced at that time. Restrictions were made on abortion and contraception and incentives were provided. The drop in the labor force in 1956-57 reflected the small birth cohorts of the 1930s depression era and the departure of young men following the 1956 uprising. The 1967-69 upturn in fertility was an adjustment effect of a changing economy whereas fertility spike in 1974 reflected pronatalist policy. Further Kornai analysis of economic trends were explained.