The Economic Arguments for Paying Parents | #parenting

Sooner or later, this demographic decline will cause problems for the United States and the world. Countries depend on stable or growing populations to maintain their tax bases, workforces, and elder-support programs. How can governments ward off low fertility, and the problems that come with it? Politicians such as President Joe Biden and Senator Mitt Romney want to follow Eastman’s lead, and encourage child-rearing by providing financial support to parents. But other countries’ experiences suggest that as people get used to having two or fewer children, even significant financial support might not be enough to incentivize them to have more. If policy makers want to ensure a stable population in the future, they have to provide more support for parents now.

The importance of a stable or growing population to human economies is easy to overlook. Most measures of economic activity treat money that parents spend on children as a form of consumption, and ignore the unpaid time that parents devote to kids’ care. This is because many economists regard children as a commodity that parents “purchase.” Since the 1970s, though, feminist economists have criticized this framework for failing to properly account for the economic relevance of parenting. Although children do provide value to their parents, classifying them as commodities understates their economic and social importance, Nancy Folbre argued in her 1994 paper “Children as Public Goods.” Spending on children is a form of “investment in demographic infrastructure,” Folbre told me recently.

Taxes offer the most concrete example of this phenomenon. Children grow up to become adults and pay taxes that exceed the value of what’s been spent on them. Although parents pay slightly less than nonparents in taxes over their lifetime, the net taxes their offspring will pay more than offset the difference, by about $217,000 per parent, according to a 2011 estimate.  

A generation that doesn’t reproduce itself risks overburdening a dwindling workforce with the requirements of the elderly. Fewer children means fewer buyers for the houses and stocks that the elderly invested in to build a retirement nest egg, a smaller tax base to pay for their pensions and outsize hospital bills, and fewer people around to undertake their care. The demands of the elderly will account for an ever-larger share of economic activity and government spending. The cost of living may decline as housing prices fall, but the economy could stagnate, especially if the shrinking pool of young people dampens innovation. The higher tax rates needed to cover Social Security and Medicare as fewer young people pay into them may exacerbate this effect.

As a wealthy nation, the United States will likely have the option of relying on immigration to delay some of these problems—if it can sustain the political will to embrace it. Foreign-born people account for a much more substantial share of the population in Australia (29 percent), Canada (21 percent), Switzerland (30 percent), Austria (19 percent), and Sweden (18 percent) than they do in the United States (14 percent). But even immigration is not a permanent solution to the problems of low fertility. The forces prompting people have fewer children are not unique to the United States. Countries in Europe and East Asia have recorded low fertility for decades, and now the rest of the world is following suit. In 2019, about half of the global population lived in areas with below-replacement fertility. Fertility remains high in sub-Saharan Africa and parts of Asia and Oceania, but is falling and is expected to continue doing so, for all of the same reasons it has fallen elsewhere: urbanization, the importance of education in industrialized economies, and women’s increasing access to employment and birth control.

Source link