Transition from baby boom to baby bust brings policy challenges

October 14, 2014

Contact: Timothy Smeeding, smeeding@lafollette.wisc.edu

MADISON—With the baby boom of the mid-1940s to 1960 a half century in the past, researchers are now finding a growing opposite trend that some call the "baby bust." Scientists concur that fertility in the United States is lower than it has ever been. They do not agree, however, about how the trend might affect the economy and whether low fertility's advantages outweigh its down sides—including its potential for significant economic and social upheaval.

Researchers project that the rapid rise in the number of elders in the face of declining fertility, coupled with medical advances that have prolonged life and increased growth of the elderly population, could cause substantial long-term changes in federal spending priorities and shortages in trust funds for Social Security and Medicare.

In a recent issue of Science magazine University of Wisconsin–Madison economist Timothy M. Smeeding, Distinguished Professor at the La Follette School of Public Affairs and former director of the Institute for Research on Poverty, explores the implications of four policy problems brought on by declining fertility and a growing proportion of elders: economic inequality, underinvestment in education, immigration, and gender equity in the workplace.

When populations age, behavior—savings, work, and both physical and human capital formation—may change. That is, if elders respond to their increasing longevity by working longer and saving more (as some have), economic growth may accelerate, which would result in a "larger economic pie for all," says Smeeding.

If the economic growth leads in turn to greater investments in the human capital of the younger generation through increased public investments in education, everyone will benefit. On the other hand, if there is underinvestment in education, the younger generation's need for their elders' help, such as payment of college tuition and other investments in their education, will be important. It is easy to see the potential for increasing inequality in the second scenario, given that less-well-off families are less able to invest in their children than wealthier families.

How does immigration fit in? Immigrants from poorer to richer nations are usually the youngest and the most productive, and those immigrants who stay usually have higher fertility rates than the native population. Smeeding notes, "The United States faces this issue right now—with the aging white population being asked to invest in the education of a growing nonwhite child population, many of whom are the children of immigrants."

There is also fertility itself, which can be a good thing. American fertility is at an all-time low through falling birthrates among teens and women in their early 20s. This has kept more young women out of poverty and improved the upward mobility of children.

Smeeding's final policy implication of the fertility decline is gender equity. Lower fertility has resulted from the greater rights and opportunities of women. More women are holding off on marriage and childbearing until after they have completed college and are well established in their careers. Smeeding says the "falling fertility among older, more stable couples is exactly the baby bust that concerns demographers."

It follows that, if governments want to increase births, policies that promote gender and family equality in the workplace are needed. Nations such as Sweden and France have responded to declining fertility by providing subsidized child care, paid parental leave, and flexible work schedules, and both countries have seen increases in their birth rates.

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—Deborah Johnson, djohnson@ssc.wisc.edu, (608) 262-7779