In the nineteenth century, fertility in Europe began to drop — and it never rose again. Of all the explanations given for the change (e.g., increase in birth control technology), there is one that is often overlooked: public pension systems.
Does knowing you’ll get a social security check at 70 limit the number of children you have in your 30s? Most people would say it wouldn’t (or, at least, shouldn’t). But a new study finds that in the past there is a strong correlation between state-provided pensions and fertility. The working paper produced by the European Central Bank finds,
. . . an empirical confirmation of the negative relationship between statutory old-age insurance or more broadly statutory social insurance and fertility. The effect amounts to a total reduction of approximately 1.7 marital births per 1000 between 1895 and 1907… [the] impact of pension insurance is comparable to the impact of an increase in urbanisation by 10-20%.
Considering that the impact of social security on people’s lives has increased rather than decreased since the early nineteenth century, the impact of social security on current levels of fertility is likely to be even larger. Therefore, the impact of social security on the current ageing problem should not be underestimated. In particular in the context of strained public finances and a widespread need for structural reforms, re-evaluating the design of the welfare state seems a promising area of development.
America’s Social Security program seems to have the same effect. In 1945 there were 41 workers for every beneficiary. Today there is are just 2.9 workers per retiree—and this amount is expected to drop to two workers per retiree by 2030.
As the population ages, Social Security requires an increase in the number of new workers to support the beneficiaries. Yet if it provides an incentive to have fewer children, the system will eventually become unworkable. That is why entitlement reform is not only a political issue, but a moral issue too. For almost a century we’ve made promises to support people in their old age so that they wouldn’t have to rely on their children. But since they never had (enough) children to support the system, we can’t keep making promises that can’t be honored.
(Via: Arnold Kling)