Optimal fertility under age-dependent labour productivity

Abstract

In the so-called Rapport Sauvy (1962), the French demographer Alfred Sauvy argued that Wallonia’s fertility rate was socially suboptimal, and recommended a 20 % rise of fertility, on the grounds that a society with too low a fertility leads to a low-productive economy composed of old workers having old ideas. This paper examines how Sauvy’s intuition can be incorporated in the Samuelsonian optimal fertility model (Samuelson, Int Econ Rev 16:531–538, 1975). We build a four-period OLG model with physical capital and with two generations of workers (young and old), the skills of the latter being subject to some form of decay. We characterize the optimal fertility rate and show that this equalizes, at the margin, the sum of the capital dilution effect (Solow effect) and the labour age-composition effect (Sauvy effect) with the intergenerational redistribution effect (Samuelson effect). Numerical simulations show that it is hard, from a quantitative perspective, to reconcile Sauvy’s recommendation with facts. This leads us to examine other potential determinants of optimal fertility, by introducing technological progress and a more general social welfare function.