The introduction of Bismarck´s social security system and its effects on marriage and fertility in Prussia

Abstract

Economists have long argued that introducing social insurance will reduce fertility. The hypothesis relies on standard models: if children are desirable in part because they provide security in case of disability or old age, then State programs that provide insurance against these events should induce couples to substitute away from children in the allocation of wealth. We test this claim using the introduction of social insurance in Germany in the period 1881-1910. Bismarck´s social-insurance scheme had three pillars: health insurance, workplace accident insurance, and an old age pension. Earlier studies typically focus on the pension alone; we consider all three pillars. We find that Bismarck´s social insurance system affected fertility overall only via its effects on the incentive to marry. The old age insurance by itself tended to reduce marriages, but the health and accident-insurance components had the opposite effect. For people exposed to all three pillars of social insurance, the two effects cancelled each other and the aggregate effect on fertility was muted.